A machine was purchased three years ago at a cost of $15,000. The maintenance costs...
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A machine was purchased three years ago at a cost of $15,000. The maintenance costs on the machine have risen steadily and currently amount to about $3,000 per year. The machine could be sold for $6,000. If retained, the machine will require an immediate $1,500 overhaul to keep it in operating condition and a second overhaul will be required in year five. MARR = 15%. The updated operating, overhaul cost, and market values over the next five years are as follows:
Year
O&M
Dn
Overhaul
MV
-3
-2
$3,000
-1
$4,800
0
$2,880
$1,500
$6,000
1
$3,000
$1,728
$4,000
2
$3,500
$1,728
$3,000
3
$3,800
$864
$1,500
4
$4,500
$1,000
5
$4,800
$5,000
$0
and the asset is classified as a five-year MACRS property and has a current book value of $5,760 if it is disposed of now. The firm's marginal tax rate is 40%, and its after tax MARR is 15%.
What is the equivalent annual cost of owing and operating the machine for two more years after taxes?
a.
$7,211
b.
$4,436
c.
$4,771
d.
$4,980
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