Robotic-welding equipment

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Reference no: EM131516962

Two years ago Quintana Company purchased a new piece of robotic-welding equipment (hereafter called Model ‘A’) which was more efficient than their existing equipment. Model ‘A’ cost $150,000, delivered and installed, and had a 10 year life expectancy with zero salvage value. At the time, it was figured that use of Model ‘A’ would reduce annual costs by $30,000.

Today, even better equipment (called “Model B”) is on the market, which makes Model A completely obsolete, with no resale value. The Model B equipment costs $300,000 delivered and installed, but it is expected to result in annual savings of $75,000 over the cost of operating the Model A equipment. The economic life of Model B is estimated to be 10 years with a zero salvage value. The company uses a 10% discount rate for analysis.

Both machines are CCA class 43 property with a rate of 30%. The firm’s marginal tax rate is 40%. What action should the company take?

Reference no: EM131516962

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