Your company has two investment opportunities under consideration with the cash flows shown below. The company’s before-tax MARR is 12%.
Investment A
Initial Cost $40,000
Annual R-E $14,000 (years 1-6)
Salvage Value $5,000 (eoy 6)
6 years
Investment B
Initial Cost $80,000
Annual R-E $27000 (years 1-5)
Salvage Value $6,500 (eoy 5)
Life 5 years
Assuming that the capital is available for either investment and they are mutually exclusive, determine which one should be selected. Use the co-terminated assumption with a 6 year study period. Hint: Find the FW at the end of 6 years without repeating the cash flows.