Selecting Among Alternative Equipment
old and cost $13,000 when it was new. It has five years left on it’s economic
life and can be traded in for $8,000. It will have annual operating cost of
$4,000. A new piece of equipment can be purchased for $18,000 and will have
annual operating cost of $1,000. This new equipment will have an economic life
of 6 years. Should you keep the old equipment or buy the new equipment?
2. Two electrical systems are being compared for a new
industrial plant. The one system will have first cost of $200,000 and annual
operating costs of $10,000. The second system will have first cost of $300,000
and annual operating costs of $5,000. Each system will be depreciated over a
period 10 years using straight depreciation. The company is in a 35% tax
bracket. Which system should be selected if they both help produce the same
expected profits over the life of the investment?
ScholarMatic: Explanation & Answer
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