In 2008, Raytheon Incorporation purchased a new Aerospace simulator System for $
ID: 2460772 • Letter: I
Question
In 2008, Raytheon Incorporation purchased a new Aerospace simulator System for $600,000. The estimated salvage value was $28,000 after 12 years. Currently the expected remaining life is 9 years with an AOC of $32,000 per year and an estimated salvage value of $40,000.Raytheon has recommended early replacement of the system which one that costs $400,000 and has a 14-year economic service lifge, a $38,000 salvage value, and an estimated AOC of &50,000 per year. If the MARR for the Incorporation is 10% per year, find the minimum trade-in value necessary now to make replacement economically advangeous.Explanation / Answer
Estimated revenues pending = (AOC* remaining life) – Salvage value for remaining life
= ($32,000 * 9 years) - $40,000
= $288,000 - $40,000
= $248,000
Cost of new project = Purchase price – Salvage value
= $400,000 - $38,000
= $362,000
Expected AOC on new project = AOC per year * life of project
= $50,000 * 14 years
= $700,000
Total expected revenue = Expected AOC on new project – Cost of new project – Estimated reeus pending on old project
= $700,000 - $362,000 - $248,000
= $90,000
MARR per annum = ($362,000 + $248,000)*10/100
= $610,000*10/100
= $61,000
For the life of new project = $61,000*14 years
= $854,000
Minimum trade-in value necessary = $854,000 - $90,000
= $764,000.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.