Five years ago, a company in New Jersey installed a diesel-electric unit costing
ID: 1841664 • Letter: F
Question
Five years ago, a company in New Jersey installed a diesel-electric unit costing $55,000 at a remote site because no dependable electric power was available from a public utility. The company has computed depreciation by the straight line method with a useful life of 10 years and a zero salvage value. Annual operation and maintenance expenses are $16,000, and property taxes and insurance cost another $3, 300 per year. Dependable electric service is now available at an estimated annual cost of $28,000. The company in New Jersey wishes to know whether it would be more economical to dispose of the diesel electric unit now, when it can be sold for $33,000, or to wait five years when the unit would have to be replaced anyway with no MV. The company has an effective income tax rate of 45% and tries to limit its capital expenditures to opportunities that will earn at least 9% per year after income taxes. What would you recommend? The AW value for the defender isExplanation / Answer
I RECOMMEND TO DISPOSE THE UNIT NOW WHICH HAS GOOD VALUE.
THE INITIAL COST WAS $55000.
MAINTENANCE COST WAS $16000
INSURANCE AND TAXES WAS $3300
ANNUAL COST WAS $28000
TAX 45%
PRESENT VALUE $33000
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