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 A B First Cost, $ –110,000 –85,000 CFBT, $ per Year 60,000 20,000 Life, Years 3 5   The company is in the

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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Chapter17: Long-term Investment Analysis
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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 A B
First Cost, $ –110,000 –85,000
CFBT, $ per Year 60,000 20,000
Life, Years 3 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 6% 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 18% 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.

 

 

The annual worth analysis for system A is determined to be $  .

 

The annual worth analysis for system B is determined to be $  .

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