A specialty concrete mixer used in construction was purchase

A specialty concrete mixer used in construction was purchased for $290,000 7 years ago. It is MACRS-GDS 5-year property. Its annual O&M costs are $80,000. At the end of an 8-year planning horizon, the mixer will have a salvage value of $6,500. If the mixer is replaced, a new mixer will require an initial investment of $375,000, and at the end of the 8-year planning horizon, the new mixer will have a salvage value of $45,000. Its annual O&M cost will be only $40,000 due to newer technology. Use an EUAC measure, a tax rate of 40 percent, and an after-tax MARR of 9 percent to perform an after-tax analysis to see if the concrete mixer should be replaced if the old mixer is sold for its market value of $55,000.

Solution

We completely agree with the statement. Real estate values are highly dependent on the capital market because the financial resources are provided from the capital market. As a major source of financial resources provider it tends to allocate these among households and forms. It is also important to note that a housing demand is one of the most volatile and largest component of the personal consumption expenditure of a household. Hence it is also the largest category of asset in any portfolio of household. This implies that the two statements are correct.

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