Decision change if the new crane has zero salvage value

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Reference no: EM132040723

The Ajax Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for $8,000. If the crane is kept in service, it must be overhauled immediately at a cost of $4,000. After the crane is overhauled, O&M costs will be $3,000 in the first year and will escalate at 5%/year thereafter. The overhauled crane will have zero MV at the end of the 10-year study period. A new crane will cost $25,000, will last for 10 years, and will have a $4,000 MV at that time. O&M costs are $1000 in the first year and will escalate at 2%/year thereafter. The company uses a before-tax MARR of 10% in evaluating investment alternatives. Should the company replace the old crane? Does the decision change if the new crane has zero salvage value? Use PW analysis and calculate the NPV. Please show how this is done in Excel.

Reference no: EM132040723

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