Alternative A Alternative B Capital investment Annual expenses $38,000 4,000 4,200 $20,000 5,500 1,000 Market value at end of useful life Useful life 5 years 10 years
Alternative A Alternative B Capital investment Annual expenses $38,000 4,000 4,200 $20,000 5,500 1,000 Market value at end of useful life Useful life 5 years 10 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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 shown. Solve, a. Which environmental protection equipment
alternative should be selected? The firm’s 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?
Transcribed Image Text:Alternative A Alternative B
Capital investment
Annual expenses
$38,000
4,000
4,200
$20,000
5,500
1,000
Market value at
end of useful life
Useful life
5 years
10 years
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