Problem 1. You currently have a piece of equipment that is 2 years old and cost $13,000 when it was new. It has five years left on it's economic life and can be traded in for $8,000. It will have annual operating cost of $4,000. A new piece of equipment can be purchased for $18,000 and will have annual operating cost of $1,000. This new equipment will have an economic life of 6 years. Should you keep the old equipment or buy the new equipment?
Problem 2. Two electrical systems are being compared for a new industrial plant. The one system will have first cost of $200,000 and annual operating costs of $10,000. The second system will have first cost of $300,000 and annual operating costs of $5,000. Each system will be depreciated over a period 10 years using straight depreciation. The company is in a 35% tax bracket. Which system should be selected if they both help produce the same expected profits over the life of the investment?