Question

A landscaping service periodically purchases a new tractor. Costs for the tractor are expected to stay close to $30,000 for the next decade. O&M expenses for tractors are typically $1,000 in the first year, increasing by $2,000 each year. (at the end of the 4th year, they would therefore be $7000). The company's MARR is 10%. The company uses MACRS GDS tables for depreciation of their tractors, and tractors are considered to have a 3-year property life. Given this information, use a replacement analysis to determine when the company should replace the tractor, assuming that they will replace each tractor no later than the end of the year the tractor has depreciated to $0.

Answer 1