An industrial forklift has been in service for several years and management plans to replace it. For the respective study, a planning horizon of five years will be used. The old forklift (defender) has a current market value of $1,500. If the defender were to be retained, it is anticipated that it would generate annual O&M costs of $7,300. It would have a market value of zero at the end of five additional years of service. The new forklift (challenger) will cost $10,000 and will have operating and maintenance costs totaling $5,100. At the end of the planning horizon it will have a market value of $2,500. Determine the preferable alternative by comparing the present value and the minimum acceptable rate of return (before taxes) of 20% per year.

An industrial forklift has been in service for several years and management plans to replace it. For the respective study, a planning horizon of five years will be used. The old forklift (defender) has a current market value of $1,500. If the defender were to be retained, it is anticipated that it would generate annual O&M costs of $7,300. It would have a market value of zero at the end of five additional years of service. The new forklift (challenger) will cost $10,000 and will have operating and maintenance costs totaling $5,100. At the end of the planning horizon it will have a market value of $2,500. Determine the preferable alternative by comparing the present value and the minimum acceptable rate of return (before taxes) of 20% per year.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 4E

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