25 Jul DETERMINE THE CFAT IN YEARS 12 AND 3 FOR THE CHALLENGER AND DEFENDER.
A 2-year old injection molding machine was expected to a serve out its projected life of 5 years bu Show more A 2-year old injection molding machine was expected to a serve out its projected life of 5 years but a challenger promises to be more efficient and have a lower operating costs. You have been asked to perform an AW evaluation to determine if it is economically attractive to replace the defender now or to keep it for 3 more years as orignally planned. The defender had a first cost of $300000 but its market value now is only $100000. It has chargeable expenses of $120000 per year and no expected salvage value. To simplify calculations assume that SL depreciation was charged at $60000 per year and that it will continue at that rate for the next 3 years. The challenger will cost $240000; have no slavage value after its 3-year life; have chargeable expenses of $30000 per year and be a SL-depreciated at $140000 per year (again for simplicity). Assume the companys effective tax rate is 35% and its after-tax MARR is 15% per year. Since GI is not estimated all taxes are negative and considered savings to the alternative. a. Detremine the CFAT in year 0 for the challenger and defender. (Hint: check for DR CG and CL.) b. Determine the CFAT in years 12 and 3 for the challenger and defender. c. Conduct he replacement study to determine if the defender should be kept for 3 more years or replaced now. Show less
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