A specialty concrete mixer used in construction was purchased for $295,000 7 years ago. It is MACRS-GDS 5-year property. Its annual O&M costs are $120,000. At the end of an 8-year planning horizon, the mixer will have a salvage value of $3,500. 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 $60,000.
a. Use the cash flow approach (insider’s viewpoint approach).
Show the EUAC values used to make your decision:
Keep existing concrete mixer: _____
Replace with new concrete mixer: _____
Use the opportunity cost approach (outsider’s viewpoint approach).
Show the EUAC values used to make your decision:
Keep existing concrete mixer: _____
Replace with new concrete mixer: _____