Opportunity cost approach-keep existing concrete mixer

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Reference no: EM131908183

A specialty concrete mixer used in construction was purchased for $340,000 7 years ago. It is MACRS-GDS 5-year property. Its annual O&M costs are $95,000. At the end of an 8-year planning horizon, the mixer will have a salvage value of $5,250. If the mixer is replaced, a new mixer will require an initial investment of $375,000, and at the end of the 8-year planning horizon, the new mixer will have a salvage value of $45,000. Its annual O&M cost will be only $40,000 due to newer technology. Use an EUAC measure, a tax rate of 40 percent, and an after-tax MARR of 9 percent to perform an after-tax analysis to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $75,000.

A. Show the EUAC values used to make your decision using the cash flow approach (insider’s viewpoint approach):

Keep existing concrete mixer: $

Replace with new concrete mixer: $

B. Use the opportunity cost approach (outsider’s viewpoint approach).

Keep existing concrete mixer: $

Replace with new concrete mixer: $

Reference no: EM131908183

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