Two processes can be used for producing a polymer that reduces friction loss in engines. Process T will have a first cost of $750,000, an operating cost of $60,000 per year, and a salvage value of $80,000 after its 2-year life. Process W will have a first cost of $1,350,000, an operating cost of $25,000 per year, and a $120,000 salvage value after its 4-year life. Process W will also require updating at the end of year 2 at a cost of $90,000. Which process should be selected on the basis of a future worth analysis at an interest rate of 12% per year?
Two processes can be used for producing a polymer that reduces friction loss in engines. Process T will have a first cost of $750,000, an operating cost of $60,000 per year, and a salvage value of $80,000 after its 2-year life. Process W will have a first cost of $1,350,000, an operating cost of $25,000 per year, and a $120,000 salvage value after its 4-year life. Process W will also require updating at the end of year 2 at a cost of $90,000. Which process should be selected on the basis of a future worth analysis at an interest rate of 12% per year?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two processes can be used for producing a polymer that reduces friction loss in engines.
Process T will have a first cost of $750,000, an operating cost of $60,000 per year, and a
salvage value of $80,000 after its 2-year life. Process W will have a first cost of $1,350,000,
an operating cost of $25,000 per year, and a $120,000 salvage value after its 4-year life.
Process W will also require updating at the end of year 2 at a cost of $90,000. Which
process should be selected on the basis of a future worth analysis at an interest rate of
12% per year?
*please answer in a neat and clear way.
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