Question

"A new asset is available for $226,000. O&M costs are $22,000 each year for the first five years, $34,320 in year six, $53,500 in year seven, and $80,800 in year eight. Salvage values are estimated to be $183,000 after one year and will decrease at the rate of 15% per year thereafter. At a MARR of 15%, determine the economic service life of the asset. Enter your answer as an integer from 1 to 8."

Answer 1

The economic service life of the asset is six years.

The 1st row shows value at the begining of the year, the second row shows the net depreciation after every year and the third row shows the value at the end of the year.

It is clear that in 7 year the value becomes negative. so the service life is between the 6 to 7 year. As the answer demanded is in the integer form. So, the service life is 6 years.