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In: Economics

Five years? ago, a company in New Jersey installed a? diesel-electric unit costing ?$55,000 at a...

Five years? ago, a company in New Jersey installed a? diesel-electric unit costing ?$55,000 at a remote site because no dependable electric power was available from a public utility. The company has computed depreciation by the?straight-line method with a useful life of 10 years and a zero salvage value. Annual operation and maintenance expenses are $15,000?, and property taxes and insurance cost another ?$3,300 per year. Dependable electric service is now available at an estimated annual cost of ?$32,000. The company in New Jersey wishes to know whether it would be more economical to dispose of the? diesel-electric unit? now, when it can be sold for $37,000?,or to wait five years when the unit would have to be replaced anyway? (with no? MV). The company has an effective income tax rate of 45?% and tries to limit its capital expenditures to opportunities that will earn at least 18?%per year after income taxes. What would you? recommend?

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Rahul Sunny answered 1 year ago
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