Engineering Economic Analysis

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Problems 437

He also believes he could sell it 3 years from now at

the barnyard flea market for $500.

The new egg-sorting machine, a deluxe model,

has a purchase price of $10,000 and will last 6 years,

at which time it will have a salvage value of $1000.

The new machine qualifies as a MACRS 7-year prop-

erty and will have operating expenses of $100 the first

year, increasing by $50 per year thereafter. Foghorn

uses an after-tax MARR of 18% and a tax rate of 35%

on original income.

(a) What was the depreciation life used with the

defender asset (the old egg sorter)?

(b) Calculate the after-tax cash flows for both the

defender and challenger assets.

(c)Use the annual cash flow method to offer a recom-

mendation to Foggy. What assumptions did you

make in this analysis?

1. I BC Junction purchased some embroidering equip-

JIlLment for their Denver facility 3 years ago for$15,000. This equipment qualified as MACRS 5-year

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property. Maintenance costs are estimated to be $1000

this next year and will increase by $1000 per year

thereafter. The market (salvage) value for the equip-

ment is $10,000 at the end of this year and declines

by $1000 per year in the future. If BC Junction has an

after-tax MARR of 30%, a marginal tax rate of 45%

on ordinary income, and depreciation recapture an4

losses, what after-tax life of this previously purchased

equipment has the lowest EUAC? Use a spreadsheet

to develop your solution. '

13-32 Reconsider the acquisition of packing equipment

JJLProblem 13-20. Given the data tabulated there, andfor Mary O'Leary's business, as described in

again using an after-tax MARR of 25% and a tax

rate of 35% on ordinary income to evaluate the

investment,determine the after-tax lowest EUACof

the equipment. Use a spreadsheet to develop y~ur

solution.

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