Question

Allen Construction purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next five years. Normal operation costs $35,000 per year. The current crane will have no salvage value at the end of 5 more years. Allen can trade in the current crane for its market value of $40,000 toward the purchase of a new one that costs $150,000. The new crane will cost only $8000 per year under normal operating conditions and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred.

a. Use the cash flow approach (insider's viewpoint approach).

b. Use the opportunity cost approach (outsider's viewpoint approach).

Answer 1

Step-by-step explanation:

I needed to solve this in my book in other to explain better. The two pictures show the both question and it is explained very well. Thank you and i hope it helps.