Question: A portable concrete test instrument used in construction for evaluating and profiling concrete surfaces (MACRS-GDS 5-year property class) is under consideration by a construction firm for $20,000. The instrument will be used for 6 years and be worth $1,250 at that time. The annual cost of use and maintenance will be $9,500. Alternatively, a more automated instrument (same property class) available from the manufacturer costs $26,500, with use and maintenance costs of only $8,500 and salvage value after 6 years of $3,500. The marginal tax rate is 40%, and MARR is an after-tax 12%.
Determine which alternative is less costly, based upon comparison of after-tax annual worth.
Alternative 1:
Alternative 2: