Problem: The LJB Company must replace a freezer and is trying to decide between the following two alternatives:
|
Item
|
Freezer A
|
Freezer B
|
|
Investment required
|
($29,000)
|
($25,000)
|
|
Annual electrical bill
|
(3,000)
|
(4,000)
|
|
Salvage value
|
6,000
|
5,000
|
|
Project life in years
|
11
|
11
|
The LJB Company's cost of capital is 8 percent.
Which investment provides LJB with the lowest total cost?