A firm is considering which of twodevices to install to reduce costs. Both devices have useful lives of 5 years and no salvage value. Device A costs $10,000 and can be expected to result in $3000 savings annually. Device B costs $13,500 and will provide cost savings of $3000 the first year but will increase $500 annually, making the second-year savings $3500, the third-year savings $4000, and so forth. For a 7% MARR, which device should the firm purchase?
A firm is considering which of twodevices to install to reduce costs. Both devices have useful lives of 5 years and no salvage value. Device A costs $10,000 and can be expected to result in $3000 savings annually. Device B costs $13,500 and will provide cost savings of $3000 the first year but will increase $500 annually, making the second-year savings $3500, the third-year savings $4000, and so forth. For a 7% MARR, which device should the firm purchase?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A firm is considering which of twodevices to install to reduce costs. Both devices have useful lives of 5 years and no salvage value. Device A costs $10,000 and can be expected to result in $3000 savings annually. Device B costs $13,500 and will provide cost savings of $3000 the first year but will increase $500 annually, making the second-year savings $3500, the third-year savings $4000, and so forth. For a 7% MARR, which device should the firm purchase?
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