A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time for $40,000 and replaced by a new truck (the challenger) with a purchase price of $70,000.
a. Given the MVs and operating and maintenance costs that follow, what is the economic life of the challenger if MARR = 10%? Note: This is a before-tax analysis that does not require any calculations involving the defender.
b. Suppose that the defender was set up on a depreciation schedule with a five-year MACRS class life at the time of its purchase (four years ago). The defender can be sold now for $40,000, or a rebuilt engine and transmission can be purchased and installed at a cost of $12,000 (capital investment with three-year depreciable life, straight line, salvage value = 0). If the defender is kept in service, assume that it will have operating and maintenance costs as shown in Part (a) and a MV of $0 at the end of four years. Determine the ATCFs for the defender. (t = 40%).