Problem
A firm is concerned about the condition of some of its plant machinery. Bill James, a newly hired engineer, reviewed the situation and identified five feasible, mutually exclusive alternatives.
Alternative A: Spend $44,000 now repairing various items. The $44,000 can be charged as a current operating expense (rather than capitalized) and deducted from other taxable income immediately. These repairs will keep the plant functioning for 7 years with current operating costs.
Alternative B: Spend $49,000 to buy general-purpose equipment. Depreciation would be straight line over the equipment's 7-year useful life. The equipment has no salvage value. The new equipment will reduce annual operating costs by $6000.
Alternative C: Spend $56,000 to buy new specialized equipment. This equipment would be depreciated by sum-of-years'-digits depreciation over its 7-year useful life. This equipment would reduce annual operating costs by $12,000. It will have no salvage value.
Alternative D: This alternative is the same as Alternative B, except it reduces annual operating costs by $7000. Alternative E: This is the "do nothing" alternative, with annual operating costs $8000 above the present level. This profitable firm pays 40% corporate income taxes and uses a 10% after-tax rate of return. Which alternative should the firm adopt?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.