This system would replace a valve system which has been used for about 20 years and which
has been fully depreciated. The costs for removing the current system are about equal to its scrap
value, so its current net market value is zero. The advantages of the new system are greater reliability
and lower human monitoring and maintenance requirements. In total, the new system would save
Lone Star $60,000 annually in pre-tax operating costs. For capital budgeting, Lone Star uses an 11
percent cost of capital, and its federal-plus-state tax rate is 40 percent.