Determine which option is preferred-use cash flow approach

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Reference no: EM131640951

Elite Construction Company purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years, Normal operating costs are $35,000 per year. The current crane will have no salvage value at the end of 5 more years. The company can trade the current crane for its market value of $40,000 toward the purchase of a new one, which costs $150,000. The new crane will only cost $8,000 per year to maintain and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred. A. use the cash flow approach (insider’s viewpoint) and B. Use the opportunity cost approach (outsider’s viewpoint).

Reference no: EM131640951

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