Clin Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for ₱800,000. If the crane is kept in service, it must be overhauled immediately at the cost of ₱400,000. Operating and maintenance costs will ₱300,000 per year after the crane is overhauled. The overhauled crane will have zero market value at the end of the 10-year study period. A new crane will cost ₱1.8M and can last for 10 years with a market value of ₱400,000 at that time. Operating and maintenance costs are ₱100,000 per year for the new crane. The company uses an after-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?
Clin Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for ₱800,000. If the crane is kept in service, it must be overhauled immediately at the cost of ₱400,000. Operating and maintenance costs will ₱300,000 per year after the crane is overhauled. The overhauled crane will have zero market value at the end of the 10-year study period. A new crane will cost ₱1.8M and can last for 10 years with a market value of ₱400,000 at that time. Operating and maintenance costs are ₱100,000 per year for the new crane. The company uses an after-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?
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