CEMEX has a cement revolving tower that was purchased 3 years ago for $45,000. I

Question

CEMEX has a cement revolving tower that was purchased 3 years ago for $45,000. It has been depreciated over the three years as a MACRS-GDS 5-year property. It has an estimating remaining life of 5 years. O&M; costs are $20,000 per year. Alternative A is to keep the existing revolving tower. It has a current value of $15,000, and it will have a salvage value of $2,000. Alternative B (MACRS-GDS 7-year property class) is to buy a new revolving tower that will cost $65,000 and will have a salvage value of $65,000 (0.75)' at the end of year t. O&M; costs are $3,000 increasing by $1,000 per year. Alternative C is to trade in the existing revolving machine on a "treated revolving unit" that requires vastly less O&M; costs at only $2,000 per year. It costs $75,000, and the trade-in allowance for the existing auger is $18,000. The "treated revolving unit" will have an $18,000 salvage value after 7 years, and has a MACRS-GDS 7-year property class. The after-tax MARR is 9%, the tax rate is 35%, and the planning horizon is 7 years. Clearly show the ATCF profile for each alternative, and using && EUAC comparison and an outsider cash flow approach, decide which is the more favorable alternative.

Explanation / Answer

Ans

Alternative c is favorable

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.