| Question |
Mary O’Leary’s company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some new automated packing equipment having a first cost of $125,000 and a MACRS class life of 7 years. The annual costs for operating, maintenance, and insurance, as well as market value data for each year of the equipment’s l0-year useful life are as follows: Annual Costs in Yearn for Market Year, Value in N Operating Maintenance Insurance Yearn 1 $16,000 $ 5,000 $17,000 $80,000 2 20,000 10,000 16,000 78,000 3 24,000 15,000 15,000 76,000 4 28,000 20,000 14,000 74,000 5 32,000 25,000 12,000 72,000 6 36,000 30,000 11,000 70,000 7 40,000 35,000 10,000 68,000 8 44,000 40,000 10,000 66,000 9 48,000 45,000 10,000 64,000 10 52,000 50,000 10,000 62,000 Now Mary is looking at the remaining 5 years of her investment in this equipment, which she had initially evaluated on the basis of an after-tax of 25% and a tax rate of35% on ordinary equipment. Assuming that the replacement repeatability assumptions are valid, answer the following questions. (a) What is the before-tax marginal cost for the remaining 5 years? (b) When, if at all, should Mary replace this packing equipment if a new challenger, with a minimum EUAC of $110,000, has been identified: Use the data from the table and the decision map from Figure 13-1? |
