Five Years Ago, a Conveyor System Was Installed in a Manufacturing

question 4

Essay

Five years ago, a conveyor system was installed in a manufacturing plant at a cost of $35,000. It was estimated
that the system, which is still in operating condition, would have a useful life of eight years, with a salvage
value of $3,000. If the firm continues to operate the system, the system's estimated market values and operating
costs for the next three years are as follows: A new system can be installed for $43,500. This system would have an estimated economic life of 10 years, with
a salvage value of $3,500. The operating costs for the new system are expected to be $1,500 per year throughout
its service life. The firm's MARR is 18%. The system belongs to the seven-year MACRS property class. The firm
's marginal tax rate is 35%.
(a) Should the existing system be replaced?
(b) If the decision in (a) is to replace the existing system, when should replacement occur?

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Definitions:

Standard Of Living

The amount of affluence, convenience, physical assets, and essential services available to a particular economic group or region.

Specialized Labor

Workforce that has a high level of expertise, training, or education in specific fields or occupations, enabling them to perform tasks more efficiently.

Self-Sufficient

The ability of an individual or economy to meet all their needs without external assistance.

Exchange

The act of giving one thing and receiving another in return, often referring to the trading of goods, services, or currencies.