Problem

Independent Speedy Printing (ISP) purchased a printing press for $12,000. The annual operating and maintenance costs of this equipment are $3,500, increasing by $1,000 per year as the printing press gets older. The resale value at the end of the first year is $8,000, reducing by $2,000 each year. If the cost of money is assumed to be 20%, what is the economic life of this press? Do not consider depreciation and tax effects. Assume ISP uses straight-line depreciation, six-year life, and zero resale value for depreciation purposes. Its aggregate tax rate is 40%, and it has a MARR of 10%. What is the economic life of this press? ISP is profitable and can use the tax effect of depreciation.