### Specialty crane used in construction was purchased

##### Reference no: EM131092010

A specialty crane used in construction was purchased for \$350,000 5 years ago. It is MACRS-GDS 7-year property. Its annual O&M costs are \$45,000 increasing by 5%. The remaining useful life is 6-years and the end of the 6-year planning horizon, the mixer will have a salvage value of \$17,500. If a new crane is purchased, it will require an initial investment of \$275,000 and 25,000 for transportation of the crane to the construction site and training of the operator. The salvage value of the new crane at the end of the 6-year planning will be \$75,000. Its annual O&M cost will be only \$30,000 increasing by a gradient series of \$750. Use the EUAC as measure of worth, a tax rate of 40 percent, and after-tax MARR of 9% to perform an after-tax analysis to see if the concrete mixer should be replaced if the old mixer is sold for its market value of \$35,000. a. Use the opportunity cost approach (outsider's viewpoint approach)

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