Thomas completed a study of a $1 million 3-year-old DNA analysis and modeling system that DynaScope Enterprises wants to keep for 1 more year or dispose of now. His table (in $1000 units) details the analysis, including an anticipated $100,000 selling price (SP) at the end of next year, SL depreciation, taxes at the all inclusive rate of Te = 52%, and PW at the after-tax MARR of 5% per year. Thomas recommends retention since PW > 0. Critique the analysis to determine if he made the correct recommendation.
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Thomas omitted the $100,000 DR in year 4. If included, in $1000 units, the CFAT is
CFAT4 = 275 + 100 – (275-250+100)(0.52)
= 275 + 100 – 65
= $310
PW = -1000 + 262(P/A,5%,3) + 310(P/F,5%,4)
= -1000 + 262(2.7232) + 310(0.8227)
= $-31.485 ($-31,485)
Economically, Thomas made a wrong recommendation, since PW < 0 at 5% per year.
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