Log in
Accounting
1
answer
0
watching
811
views
12 Dec 2018

A specialty concrete mixer used in construction was purchasedfor $300,000 7 years ago. Its annual O&M costs are$105,000. At the end of the 8-year planning horizon, the mixer willhave a salvage value of $5,000. If the mixer is replaced, a newmixer will require an initial investment of $375,000. At the end ofthe 8-year planning horizon, it will have a salvage value of$45,000. Its annual O&M cost will be only $40,000 dueto newer technology. Analyze this using an EUAC measureand a MARR of 15% to see if the concrete mixer should bereplaced if the old mixer is sold for its market value of$65,000.

(a) Use the cash flow approach (insider’s viewpoint approach)and show the EUAC values used to make your decision:
(i) Existing concrete mixer: $

(ii) New concrete mixer: $

(b) Use the opportunity cost approach (outsider’s viewpointapproach) and show the EUAC values used to make your decision:

(i) Existing concrete mixer: $

(ii) New concrete mixer: $

Watch
1
answer
0
watching
811
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Jean Keeling
Jean KeelingLv2
12 Dec 2018

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

A specialty concrete mixer used in construction was purchasedfor $700,000 nine years ago. It has a market value of $40,000today. The mixer costs $350,000 annually to operate and maintain. Anew mixer can be purchased for $800,000 and will have annualO&M costs of $120,000. If the old mixer is kept, it will haveno salvage value at the end of it's remaining life of 10 years. Ifthe new mixer is purchased, it will have a salvage value of$100,000 in 10 years. MARR is 20%. Should the mixer be replaced ifit is taken as a trade-in for its market value of $40,000?

a) Clearly show the cash flow profile for each option (keep oldmixer vs. purchase new) using a cash flow approach.

b) Using EUAC with a cash flow approach, decide which option ismore favorable.

A division of Raytheon owns a 5-year-old turret lathe used to manufacture fabricated metal products that was purchased for $96,000 and now has a financial reporting (non-tax) book value of $24,000. It has been depreciated for tax purposes as MACRS-GDS 7-year property. It has a current market value of $18,000. The expected decline in market value is $3,000 per year from this point forward to a minimum of $3,000. O&M costs are $8,000 per year. Additional capability is needed. If the old lathe is kept, that new capability will be contracted out for $13,000, assumed payable at the end of each year. A new turret lathe has the increased capability to fulfill all needs, replacing the existing turret lathe and requiring no outside contracting. It can be purchased for $65,000 and will have an expected life of 8 years. Its market value is expected to be $65,000(0.7t) at the end of year t. Annual O&M costs are expected to equal $10,000. If the after-tax MARR is 9 percent, the tax rate is 40 percent, and the planning horizon is 8 years, determine whether to keep and use a contractor or to sell and buy new.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in