Engineering Economic Analysis

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424 REPLACEMENTANALYSIS

Thus if we sell at the outset(n=0) we have:

(Sell)

Year,n

o

Before-Tax

Cash Flow

+8000

"Depreciation

Taxable

Income

+500

Income

Taxes

-170

After-Tax

Cash Flow

+$7830

Step 3 and 4

Change signs. The after-tax cash flow figure is the time zeroopportunity costfor keeping the

defender.

(Keep)

Year,n

o

Before-TaX

Cash Flow

-8000

Depreciation

TaxaJ)Je

Inco~e

-500

Income

Taxes

+170.

After.;TaX

Cash Flow

-$7830

After-tax Time-O costfor the defender =--$7830

Determine whether the SK-3"0laptop of Example 13-9 should be replaced by the EL-40 model.

In addition to the data given in Example 13-9, the following estimates have been made:

· The SK-30 maintenance and service contract costs $80 a year.:

·The EL-40 will require no maintenance.

·Either laptop is expected to be used for the next 5 years.

·At the end of that time, the SK-30 will have no value, but the EL-40 probably could be

sold for $250.

..The EL-40 laptop is faster and easier to use than the SK-30 model. This benefit is ~xiJlll!tl

to save about $ 120 a year by reducing the needfor part-time employees.

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r first option

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the

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SK-30rat

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er th

..an sell it. Use the following data to compute the J

. after-tax cashfiow~.9verII the 5:'YGar studyperiod.~ III lIPtJf

Solve this problem with a MARR equal to 8% after taxes. Both laptop computers will be depre-

ciated by straight-line depreciation using a 4-yeafclepreciable life. The SK-30 is already 2 years

old, so only 2 years of depreciation remain. The analysis period remains at 5 years. Assume a

3.4%corporate income tax rate.