A contractor is considering the acquisition of a new piece of construction equipment costing $350 000. The equipment

A contractor is considering the acquisition of a new piece of construction equipment costing $350 000. The equipment will join other assets in a CCA class with a 30% declining balance rate. The tax rate is 48% and the cost of capital is 15%. Estimates are that the operating cost of the equipment will be $60 000 per year and will increase by 20% per year. Probable salvage value at the end of the first year is $300 000. It
will decline by $50 000 each year thereafter reaching $100 000 at the end of the fifth year. Analyze the proposal by determining the NPV of costs and EUAC for service lives ranging from one to five years.
Determine the economic life of this piece of equipment and calculate the annual equivalent revenue required when operated at this service life.


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