Pinion Potato Chip Inc. must purchase new potato peeling equipment for its plant in Union City, Tennessee. The plant engineer has determined the following three setups are possibilities:
Naked Peel Skinner Peel-o-Matic
First Cost: $50,000 $50,000 $50,000
Annual Costs: $6,000 $5000 $5,000
Declared Salvage Value 12 % of FC $5,500 $10,000
Useful Life 6 years 6 years 6 years
Actual Salvage Value $6,500 $5,500 $12,000
All assets are depreciated using straight line method. Determine which setup should be chosen if the MARR for the firm is 10% and the marginal tax rate is 34%. What is the NPW of each and what would you choose?
A) Naked Peel: -52,815; Skinner: -50,285; POM: -48,111; POM
B) Naked Peel: -42,594; Skinner: -39,949; POM: -46,171; POM
C) Naked Peel: -21,894; Skinner: -24,645; POM: -38,385; Naked Peel