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The Ajax Corporation has an overhead crane that has an estimated remaining life of 10...

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Finance

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

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