A new brewing system can be purchased that is more efficient than the much older system currently in place at a local brewery. The initial cost of the new system would be $280,000. It is expected that the system would save the company $95,000 each year in operating costs, over the next 4 years. The interest rate is expected to stay steady at 12%. The salvage value 4 years from now will be $80,000.
Evaluate this alternative based on Present Equivalent. What is the PE savings?
Evaluate this alternatuve using the Annual Equivalent Method. What is the AE savings?