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| Teaching Since: | May 2017 |
| Last Sign in: | 408 Weeks Ago |
| Questions Answered: | 66690 |
| Tutorials Posted: | 66688 |
MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
A pharmaceutical company has some existing semiautomated production equipment that they are considering replacing. This equipment has a present MV of $57,000 and a BV of $30,000. It has five more years of straight-line depreciation available (if kept) of $6,000 per year, at which time its BV would be $0. The estimated MV of the equipment five years from now (in year-zero dollars) is $18,500. The MV rate of increase on this type of equipment has been averaging 3.2% per year. The total operating and maintenance and other related expenses are averaging $27,000 (A$) per year. New automated replacement equipment would be leased. Estimated operating and maintenance and related company expenses for the new equipment are $12,200 per year. The annual leasing cost would be $24,300. The after-tax MARR (with an inflation component) is 9% per year (im); t = 40%; and the analysis period is five years. Based on an after-tax, A$ analysis, should the replacement be made? Base your answer on the actual IRR of the incremental cash flow.
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