A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: System First Cost, $ CFBT, $ per year Life, Years A System A A B) System B -120,000 60,000 3 B -75,000 20,000 The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 10% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis worked by hand. Which system should be selected? 5
A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients, while being economical. The two alternatives available have the following estimates: System First Cost, $ CFBT, $ per year Life, Years A System A A B) System B -120,000 60,000 3 B -75,000 20,000 The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 10% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis worked by hand. Which system should be selected? 5
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
Problem 1PS
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5. Choose the correct answer.
Transcribed Image Text:A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,
while being economical. The two alternatives available have the following estimates:
System
First Cost, $
CFBT, $ per Year
Life, Years
A
A System A
B) System B
-120,000
60,000
B
-75,000
20,000
5
The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at an
after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated;
however, system B can be sold after 5 years for an estimated 10% of its first cost. System A has no anticipated salvage value.
Determine which is more economical using an annual worth (AW) analysis worked by hand.
Which system should be selected?
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