Problem

Transport International Incorporated (TII) is purchasing a new heavy-duty tractor-trailer truck for $250,000 and installing some special equipment on it at a cost of $90,000. The total cost is depreciated by the MACRS schedule. The company anticipates income of $300,000 the first year, with a reduction of $20,000 each year from the operation of this system. Its cost of operation is estimated to be $110,000 in the first year, increasing by $18,000 each year due to heavy downtime and maintenance cost. The estimated resale value of this system is $200,000 at the end of the first year, reducing to $150,000 by the end of the second year, and reducing by $20,000 each year after. TII has a tax rate of 40% and is using a MARR of 8%. Calculate the economic life of this system.