5.41 An electric utility is taking bids on the purchase, installation, and operation of mi- crowave towers. Following are some details associated with the two bids that were received: Cost per Tower Bid A Bid B Equipment cost $112,000 $98,000 Installation cost $25,000 $30,000 Annual maintenance and inspection fee $2,000 $2,500 Annual extra income taxes $800 Life 40 years 35 years Salvage value Which is the most economical bid if the interest rate is considered to be 11%? Ei- ther tower will have no salvage value after 20 years of use. Use the NPW method to compare these two mutually exclusive plans.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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5.41 An electric utility is taking bids on the purchase, installation, and operation of mi-
crowave towers. Following are some details associated with the two bids that were
received:
Cost per Tower
Bid A
Bid B
Equipment cost
$112,000
$98,000
Installation cost
$25,000
$30,000
Annual maintenance
and inspection fee
$2,000
$2,500
Annual extra income taxes
$800
Life
40 years
35 years
Salvage value
$O
$0
Which is the most economical bid if the interest rate is considered to be 11%? Ei-
ther tower will have no salvage value after 20 years of use.
Use the NPW method to compare these two mutually exclusive plans.
Transcribed Image Text:5.41 An electric utility is taking bids on the purchase, installation, and operation of mi- crowave towers. Following are some details associated with the two bids that were received: Cost per Tower Bid A Bid B Equipment cost $112,000 $98,000 Installation cost $25,000 $30,000 Annual maintenance and inspection fee $2,000 $2,500 Annual extra income taxes $800 Life 40 years 35 years Salvage value $O $0 Which is the most economical bid if the interest rate is considered to be 11%? Ei- ther tower will have no salvage value after 20 years of use. Use the NPW method to compare these two mutually exclusive plans.
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