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28 Sep 2019
6. Consider the following information associated with a 2 yearold asset (the âdefenderâ) with an original cost basis of$4,400:
Annual O&M costs: $10,000
Depreciation: 5 year MACRS GDS (2 years already taken)
Remaining life 3 years
Current market value $2,500
Market value in 3 years $0
a. Find the after tax cash flows (ATCFs) of this defender usingan after-tax MARR of 12% and an effective tax rate of 40%.
b. If the best challenger has a known after-tax PW over 3 yearsof $-14,000 should the defender be replaced? Explain. Answer: PW ofdefender ATCFs is $-16,076 so yes replace.
6. Consider the following information associated with a 2 yearold asset (the âdefenderâ) with an original cost basis of$4,400:
Annual O&M costs: $10,000
Depreciation: 5 year MACRS GDS (2 years already taken)
Remaining life 3 years
Current market value $2,500
Market value in 3 years $0
a. Find the after tax cash flows (ATCFs) of this defender usingan after-tax MARR of 12% and an effective tax rate of 40%.
b. If the best challenger has a known after-tax PW over 3 yearsof $-14,000 should the defender be replaced? Explain. Answer: PW ofdefender ATCFs is $-16,076 so yes replace.
Sixta KovacekLv2
28 Sep 2019