Mary OLearys company ships fine wool garmentsfrom County

Chapter , Problem 13-31

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Mary OLearys company ships fine wool garmentsfrom County Cork, Ireland. Five years ago shepurchasedsome new automated packing equipmenthaving a first cost of $125,000 and a MACRS classlife of 7 years. The annual costs for operating,maintenance,and insurance,as well as marketvaluedata for each year of the equipments 10-year usefullife are as follows.YearAnnual Costs in YearnnnforMarket ValuenOperating Maintenance Insurance in Yearnnn1 $16,000 $ 5,000 $17,000 $80,0002 20,000 10,000 16,000 78,0003 24,000 15,000 15,000 76,0004 28,000 20,000 14,000 74,0005 32,000 25,000 12,000 72,0006 36,000 30,000 11,000 70,0007 40,000 35,000 10,000 68,0008 44,000 40,000 10,000 66,0009 48,000 45,000 10,000 64,00010 52,000 50,000 10,000 62,000Now Mary is looking at the remaining 5 yearsof her investment in this equipment, which shehad initially evaluated on the basis of an after-taxMARR of 25% and a tax rate of 35%. Assumethat the replacement repeatability assumptions arevalid.(a)What is the before-tax marginal cost for theremaining 5 years?(b)When, if at all, should Mary replace thispacking equipment if a new challenger, witha minimum EUAC of $110,000, has beenidentified?