A firm is considering two different methods of solving a production problem. Both methods are expected to be obsolete in six years. Method A would cost $80,000 initially and have annual operating costs of $22,000. Method B would cost $52.000 initially and have annual operating costs of $17,000. The salvage value realized with Method A would be $20,000 and Method B would be $15,000. Method A would generate $16,000 of revenue a year more than Method B. Investments in both methods depreciate as a five-year MACRS property class. The firm's marginal income-tax rate is 40%. The firm's MARR is 20%. What would be the required additional annual revenue for Method A so the firm would be indifferent in its choice of method?
A firm is considering two different methods of solving a production problem. Both methods are expected to be obsolete in six years. Method A would cost $80,000 initially and have annual operating costs of $22,000. Method B would cost $52.000 initially and have annual operating costs of $17,000. The salvage value realized with Method A would be $20,000 and Method B would be $15,000. Method A would generate $16,000 of revenue a year more than Method B. Investments in both methods
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