Assume that you are using a crane with 5 years of service remaining. The existing crane has a book value of $50,000, a salvage value of $5,000, and O&M first-year cost of $10,000 (O&M cost will increase at $2,000 /year thereafter) A new crane can be purchased for $100,000 with a 10-year service life. O&M costs for the first year are $4,000 with $500/year increase thereafter. The estimated resale value is $40,000 at year 5. Should you buy the new crane with i =10% ?

Assume that you are using a crane with 5 years of service remaining. The existing crane has a book value of $50,000, a salvage value of $5,000, and O&M first-year cost of $10,000 (O&M cost will increase at $2,000 /year thereafter) A new crane can be purchased for $100,000 with a 10-year service life. O&M costs for the first year are $4,000 with $500/year increase thereafter. The estimated resale value is $40,000 at year 5. Should you buy the new crane with i =10% ?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section9.A: Depreciation

Problem 5P

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