Annual costs for operating-automated packing equipment

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Reference no: EM131810485

Mary O'Leary's company ships fine wool garments from County Cork, Ireland. Five years ago she purchased some new automated packing equipment having a first cost of $125,000 and a MACRS class life of 7 years. The annual costs for operating, maintenance, and insurance, as well as market value data for each year of the equipment's 10-year useful life are as follows.

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Now Mary is looking at the remaining 5 years of her investment in this equipment, which she had initially evaluated on the basis of an after-tax MARR of 25% and a tax rate of 35%. Assume that the replacement repeatability assumptions are valid.

(a) What is the before-tax marginal cost for the remaining 5 years?

(b) When, if at all, should Mary replace this packing equipment if a new challenger, with a minimum EUAC of $110,000, has been identified?

Reference no: EM131810485

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