In 2006, Violet Rose Computer Corporation purchased a new quality inspection sys

Question

In 2006, Violet Rose Computer Corporation purchased a new quality inspection system for $550,000.   The   estimated   salvage   value   was $50,000 after 10 years. Currently the expected remaining life is 7 years with an AOC of $27,000 per year and an estimated salvage value of $40,000. The new president has recommended early replacement of the system with one that    costs $400,000 and has a 12-year economic service life, a $35,000 salvage value, and an estimated AOC of $50,000 per year. If the MARR for the corporation is 12% per year, find the minimum trade-in value necessary now to make the president’s replacement economically advantageous.

Explanation / Answer

expected retunrs pending on the project = (27000*7-40000) = 1,49,000

Cost of Project recommended = 400000-35000 = 365000

Returns expected = 50000*12 = 600000

Returns = 600000-365000-149000= 86000

In per centage MARR = (365000+149000)*12% = 514000*12%= 61640 p.a.

For 12 years, it will be 61640*12 = 739680

MARR = 12%

Therefore, government needs to give 739680-86000 = 6,53,680

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.