A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed. . Model A costs $250,000 for purchasing and installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and maintenance (O&M) cost of $24,000 and the cost increases each year by 5 % over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (O&M) cost of $11,000 and the cost increases each year by 7% over the previous year's O&M cost. It the company has MARR of 10%, select the correct statement.

A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed. . Model A costs $250,000 for purchasing and installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and maintenance (O&M) cost of $24,000 and the cost increases each year by 5 % over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (O&M) cost of $11,000 and the cost increases each year by 7% over the previous year's O&M cost. It the company has MARR of 10%, select the correct statement.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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