Five years ago, a piece of equipment was purchased at a cost of $170,000, with a salvage value of $20,000 at the end of its 15-year useful life. The equipment currently has a market value of $80,000. In addition, it generates income before depreciation and taxes of $580,000 each. year, with operating costs of $450,000 per year. Consider replacing this equipment with a new one, which has a purchase price of $280,000, $30,000 salvage value at the end of its 10-year useful life, which would raise income before depreciation and taxes to $700,000, with annual operating costs of $510,000. Taxes of 50% are paid and both Equipment is depreciated on a straight line basis. The company's MARR is 19.5%. Determine the economic desirability of replacement.
Five years ago, a piece of equipment was purchased at a cost of $170,000, with a salvage value of $20,000 at the end of its 15-year useful life. The equipment currently has a market value of $80,000. In addition, it generates income before depreciation and taxes of $580,000 each. year, with operating costs of $450,000 per year. Consider replacing this equipment with a new one, which has a purchase price of $280,000, $30,000 salvage value at the end of its 10-year useful life, which would raise income before depreciation and taxes to $700,000, with annual operating costs of $510,000. Taxes of 50% are paid and both Equipment is depreciated on a straight line basis. The company's MARR is 19.5%. Determine the economic desirability of replacement.
Answer: ΔNPV = −18,391.43. Do not replace
Step by step
Solved in 4 steps
