After 8 years of use, the heavy-truck engine-overhaul equipment at Pete's Truck Repair was evaluated for replacement. Pete's accountant used an after-tax minimum acceptable rate of return (MARR) of 8% per year. Te of 30%, and a current market value of $25,000 to determine AW = $2100. The new equipment costs $75,000, uses straight line (SL) depreciation over a 10-year recovery period, and has a $15,000 salvage estimate. The estimated cash flow before taxes (CFBT) is $15,000 per year. Pete asked his enginee son Ramon to determine if the new equipment should replace what is owned currently. From the accountant, Ramon learned the current equipment cost $20,000 when purchased and reached a zero book value several years ago. Help Ramon answer his father's question The annual worth of the challenger is determined to be $ The (Click to select) has a higher AW value and thus selected.

After 8 years of use, the heavy-truck engine-overhaul equipment at Pete's Truck Repair was evaluated for replacement. Pete's accountant used an after-tax minimum acceptable rate of return (MARR) of 8% per year. Te of 30%, and a current market value of $25,000 to determine AW = $2100. The new equipment costs $75,000, uses straight line (SL) depreciation over a 10-year recovery period, and has a $15,000 salvage estimate. The estimated cash flow before taxes (CFBT) is $15,000 per year. Pete asked his enginee son Ramon to determine if the new equipment should replace what is owned currently. From the accountant, Ramon learned the current equipment cost $20,000 when purchased and reached a zero book value several years ago. Help Ramon answer his father's question The annual worth of the challenger is determined to be $ The (Click to select) has a higher AW value and thus selected.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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After 8 years of use, the heavy-truck engineoverhaul equipment at Pete’s Truck Repair was evaluated for replacement. Pete’s accountant used an after-tax MARR of 8% per year, Te of 30%, and a current market value of $25,000 to determine AW = $2100. The new equipment costs $75,000, uses SL depreciation over a 10-year recovery period, and has a $15,000 salvage estimate. Estimated CFBT is $15,000 per year. Pete asked his engineer son Ramon to determine if the new equipment should replace what is owned currently. From the accountant, Ramon learned the current equipment cost $20,000 when purchased and reached a zero book value several years ago. Help Ramon answer his father’s question.
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A plant manager for a fiber optics cable manufacturing company knows that the remaining capital investment in several types of equipment is more closely approximated when the equipment is depreciated linearly by the SL method compared to a rapid write-off method like MACRS. Therefore, he keeps two sets of books, one for tax purposes (MACRS) and one for equipment-management purposes (SL). For an asset that has a first cost of $80,000, a depreciable life of 5 years, and a salvage value equal to 25% of the first cost, determine the difference in the book values shown in the two sets of books at the end of year 3. Which method has the lower book value and by how much?
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