1. RR must build a tunnel to maintain his access

1. RR must build a tunnel to maintain his access around the mountain. The tunnel could be fabricated of normal steel for an initial cost of $30,000 and should last for 12 years. Maintenance will cost $1,000 per year.

Another option would be to use corrosion resistant steel, which will last for 12 years, with annual maintenance cost of $100. In 12 years there would be no salvage value for either bridge. RR pays combined federal and state taxes at the 45% marginal rate and uses straight-line depreciation. If the after tax MARR is 12%, what is the maximum amount that should be spent on the corrosion-resistant tunnel?

2. A corporate expects to receive $37948 each year for 15 years if a particular project is undertaken. There will be an initial investment of $112005. The expenses associated with the project are expected to be $7317 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 48% marginal tax rate, MARR of 8%, determine the project’s after-tax net present worth.

3. A material handling system was purchased 3 years ago for $120445. Two years ago it required substantial upgrading at a cost of $16230. It once again is requiring an upgrading cost of $23327. Alternately, a new system can be purchased today at a cost of $210805, with a salvage value of $19518. The existing machine could be sold today for $52375. In an economic replacement analysis, what first cost should be assigned to the existing system?