Engineering Economic Analysis

Regarding the market value data in this problem, it should be pointed out that the initial

decrease of $50,000in Year 1is not Uncommon.This is especially true for custOJJ,1;.builtequipment

for a particular and unique applicationat a specificplant. Such equipmentwould not be as valuable

to others in the marketplace as to the company for which it was built. Also, the $100,000 first

cost (cost basis) could ha,ve-inclpde£lcosts dlle to iJ.1s1allatioJ.1,facility modifications, orreJIloval

of old equipment. The $50,000is realjstic for the market value of one-year-old equipment.

The next step is to determine the ATCFs that would occur in each possible year of disposal.

(The ATCF for year 0 is easy; it is -$100,000.) For example, as shown in Table 13-3, in Year 1

there is a $35,710 loss as the book value exceeds the market value. The t:axsavings from tlri.sloss

..areadded to the salvage (market) value to determine the ATCF(If the asset is disposed ditring

Year 1).

This table assumes that depreciation is taken during the year of disposal and then calculates

the recaptured depreciation (gain) or loss on the book value at the end of the year.

i
I
I ,TABLE 13-3 ATCF in Year of Disposal for Example 13-14

Year,

t

ATCFIf

Disppsedof

Gain/Loss Tax

(at40%)

II

Market Value BooJ< Value. Gain or Loss

-$35,710

-16,220

-3,730

3,760

7,690

11,610

15~540

"5;000

10,00Q

5,000'

$85,710

61,220

43,730

31,240

22,310

13,39Q

_ __4,~60

u_ -=0 II;

o

o

$50,000

45,000

40,000

35,000

30,000

25,000

20,000

~:= i5,oITo,=;:I

10,OQO

5,000

$14,284

6,488

1,492

1,504

-3,076'

..".4,644

6,216

== ~ffooo'~;;;;o".'. ~

-4A')PQ

.o.,i,OOQ

$64,284

51,488

41,492

33,496

26,924

20;356.

13,784

'101='9;'000-

Q,ooO

3,000

1

2

3

" 4

II 5

6

-- -^7 -

---8 ~

II9

(^10) """"-"--"'~''''''''''''.,,,,,,..
_,.'" .'-- ~

II

t i I J I I a l

428 REPLACEMENTANALYSIS

-TABLE'13-2 ATCF for' O&M and Depreciation for Example13-14

Year, O&M MACRS Taxable Taxes O&M

t Expense Depreciation,dt Income (at 40%) Depreciation ATCF

(^1) -$10,000 $14,290 -$24,290 $ 9,716 -$284
(^2) -14,000 24,490 -38,490 15,396 1,396
(^3) -18,000 17,490 -35,490 14,196. -3,804
(^4) -22,000 12,490 ....34,490 13,196 -8,204
(^5) -26,000 8,930 -34,930 13,972 -12,028
(^6) -30,000 8,920' -38,920 15,568 -14,432
(^7) -34,000 8,930 -42,930 17,172 -16,828
(^8) -38,000 4,460 ....42,460 16,984 -21,016
(^9) -42,000 0 .- -42,000 16,800 --25,200.
10 -46,000 0 -46,000 18,400 -27,600