A company is considering replacing its air conditioner. Management has narrowed the choices to two alternatives that offer comparable performance and considerable savings over their present system. The effective annual interest rate is 10%. (a) Compute B/C ratio for each alternative (b) Which alternative should be selected based on incremental analysis? $7000 II $9000 Initial cost Annual savings $1500 Salvage value Life $1900 -$1250 $500 15 years 15 years
A company is considering replacing its air conditioner. Management has narrowed the choices to two alternatives that offer comparable performance and considerable savings over their present system. The effective annual interest rate is 10%. (a) Compute B/C ratio for each alternative (b) Which alternative should be selected based on incremental analysis? $7000 II $9000 Initial cost Annual savings $1500 Salvage value Life $1900 -$1250 $500 15 years 15 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![A company is considering replacing its air conditioner. Management has narrowed the choices to
two alternatives that offer comparable performance and considerable savings over their present
system. The effective annual interest rate is 10%.
(a) Compute B/C ratio for each alternative
(b) Which alternative should be selected based on incremental analysis?
I
II
Initial cost
$7000
$9000
Annual savings $1500
Salvage value
Life
$1900
-$1250
$500
15 years 15 years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F597939de-1f34-43cb-b662-220d970131a4%2F9431b45f-22ca-4f11-9869-a6ab8c3a1b04%2F0jv3nzc_processed.png&w=3840&q=75)
Transcribed Image Text:A company is considering replacing its air conditioner. Management has narrowed the choices to
two alternatives that offer comparable performance and considerable savings over their present
system. The effective annual interest rate is 10%.
(a) Compute B/C ratio for each alternative
(b) Which alternative should be selected based on incremental analysis?
I
II
Initial cost
$7000
$9000
Annual savings $1500
Salvage value
Life
$1900
-$1250
$500
15 years 15 years
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