Depreciation is by the standard MACRS Method

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An old, fully depreciated asset (defender) has O&M cost of $1,500 this year, and these will increase by $1,500 each year. The current salvage value of the asset is $4,500, and this is expected to decline by $750 each year. The new asset (challenger) costs $9,000; falls in the 5 year property class; has O&M costs of $1,400/year, increasing by $500 each year; and has a salvage value of $5,000 after one year, declining by 10% each year. Depreciation is by the standard MACRS Method. The firm is a large, profitable corporation with a combined income tax rate of 40% and a MARR of 15%. What is your recommendation?

Reference no: EM13771737

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