ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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9.1 The Arkansas Division of ADM, a large agricultural products corporation, pur- chased a state-of-the-art ground-leveling system for rice field preparation 3 years ago for $120,000. When purchased, it had an expected service life of 10 years, an estimated salvage of $25,000 after 10 years, and AOC of $30,000. Current account book value is $80,000. The system is deteriorating rapidly; 3 more years of use and then salvaging it for $10,000 on the international used farm equip- ment network are now the expectations. The AOC is averaging $30,000.
A substantially improved, laser-guided model is offered today for $100,000 with a trade-in of $70,000 for the current system. The price goes up next week to $110,000 with a trade-in of $70,000. The ADM division engineer estimates the laser-guided system to have a useful life of 10 years, a salvage of $20,000, and an AOC of $20,000. A $70,000 market value appraisal of the current sys- tem was made today.
If no further analysis is made on the estimates, state the correct values to include if the replacement study is performed today.
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