A firm needs to replace its the garage doors at its loading dock area. Two options are available. A Deluxe mode] costs $4500 and has an expected life of 9 years. This heavy gauge steel door has a salvage value of $250. The Standard light gauge steel door costs $1425 with an expected life of three years and has a salvage value of $100. Assume the standard door can be replaced with another standard door, as necessary. The Deluxe model also seals more tightly, providing $480 annual savings on heating costs compared to the Standard door.
a) Show the cash flows for this problem.
b) Which door is preferable at 7% discount rate?
c) If the interest rate is not specified, how would you decide which is the better choice?