Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. the estimated cash flows for each alternative are as follows: (6.5)
ALTERNATIVE A:
capital investment= $20,000
annual expenses= $5,500
market value at end of useful life= $1,000
useful life= 5 years
ALTERNATIVE B:
capital investment= $38,000
annual expenses= $4,000
market value at end of useful life= $4,200
useful life= 10 years
a) Which environmental protection equipment alternative should be selected? the firms MARR is 20% per year. Assume the equipment will be needed indefinitely
b) Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $15,000. Which alternative would you recommend?