A pick-and-place robot whose economic life is 1 year is being considered for replacement by its deluxe model. The operating advantages of the deluxe model have been posted in Part I of the MAPI summary form as Figure 12.14. The deluxe model costs $40,000 and qualifies for a 25% tax credit.Assume

Question

A pick-and-place robot whose economic life is 1 year is being considered for replacement by its deluxe model. The operating advantages of the deluxe model have been posted in Part I of the MAPI summary form as Figure 12.14. The deluxe model costs $40,000 and qualifies for a 25% tax credit.

Assume straight-line depreciation
10 years as the estimated service life
10% of the net costs as salvage value
$1,000 as next-year increase in depreciation and interest deductions
$5,000 as defender’s disposal value
$4,000 as challenger’s salvage value

Based on the MAPI method, should the defender be replaced if MARR is 10%?

Accepted Answer

MAPI analysis involves a careful filling-in of the summary form with the given data, as presented in Figures 12.15 and 16, along with the associated simple computations. The procedure for Part I comprises:

Fill-in the top portion of the summary form.
Do the total of items 1 and 2 at item 3.
Do the total of items 4 through 21 at item 22.
Compute the values at items 23, 24, and then 25.

For the given data, the annual operating advantage, as computed at item 25, is $4,100.
Next, Part II of the form is filled in with the appropriate data. The $40,000 installed cost and the 25% tax credit yield $30,000 as the net cost in Section A. With $5,000 as defender’s disposal value, the initial net investment is found at item 28 to be $25,000. In Section B, the 88.8% data at item 29E has been obtained from Figure 12.10 corresponding to a 10-year service life and 10% salvage ratio ($4,000/$40,000 = 0.1 = 10%). The terminal net investment as computed at item 31 is $22,640. Finally, the after-tax return as computed at item 40 is 12.2%. Since it is higher than the 10% MARR, the deluxe model should replace the defender.

This example has illustrated the simplicity and comprehensiveness of the MAPI method for replacement analysis.

Question 12.9: A pick-and-place robot whose economic life is 1 year is bein...

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