A new asset is available for $150,000. Depreciation would be SL with the half-year convention, in the 8-year property class. O&M costs are $15,000 each year for the first 5 years, $18,000 in year 6, $21,000 in year 7, $24,000 in year 8, etc. Salvage values are estimated to be $131,250 after 1 year, $113,750 after 2 years, $97,500 after 3 years (SOYD pattern with N=15). With a marginal tax rate of 45% and MARR=12%.
a. Find the economic life of the asset.
b. Explain each step in determining the economic life of an asset and the significance of the MARR (12%) provided in this problem.