ORIE_451_Homework__6

ORIE_451_Homework__6 - 3 Here is the following data for the...

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ORIE 451/551 Homework #6 Due March 7, 2008 by 1:15 PM 1. Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $54,000 per year. The new machine will cost $82,500, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period. The applicable corporate tax rate is 40 percent, and the firm’s cost of capital is 12 percent. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? If so, when? 2. 9-13 from the textbook
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Unformatted text preview: 3. Here is the following data for the new machine and the old machine at The Erley Equipment Company. Both are in the MACRS-5 class. The old machine was purchased 4 years ago, as shown. Find the optimal replacement scheme. The MARR is 10% (after tax) and the tax rate is 40%. Use the opportunity cost method. New Machine Old Machine Time SV O&M Time SV O&M 400,000-4 230,000 1 200,000 30,000-3 206,000 36,000 2 175,000 42,000-2 182,000 46,800 3 150,000 58,800-1 158,000 60,840 4 125,000 82,320 134,000 79,092 5 100,000 115,248 1 110,000 102,820 6 75,000 161,347 2 86,000 133,665 7 50,000 225,886 3 62,000 173,765 8 25,000 316,241 4 38,000 225,895...
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This note was uploaded on 04/06/2010 for the course ORIE 451 at Cornell.

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