Question: Northern Chemicals is considering two additives for improving the dry-weather stability of its low-cost acrylic paint:
Additive ‘A' has a first cost of $50,000 and an annual operating cost of $18,000.
Additive ‘B' has a first cost of $75,000 and an annual operating cost of $8,500.
If the company uses a 5-year recovery period for paint products and a MARR of 16% per year, which process is economically favored? Use an incremental ROR analysis.