A manager has been presented with two proposals for automating a production process. Proposal A involves an initial cost of $15,000 and an annual operating cost of $2,000 per year for the next 4 years. Thereafter, the operating cost is expected to increase by $100 per year. This equipment is expected to have a 10-year life with no salvage value. Proposal B requires an initial investment of $28,000 and an annual operating cost of $1,200 per year for the first 3 years. Thereafter, theoperating cost is expected to increase by $120 per year. This equipment is expected to last for 20 years and will have a $2,000 salvage value. If the company's minimum attractive rate of return is 10%, which proposal should be accepted on the basis of present worth analysis?
. A manager has been presented with two proposals for automating a production process. Proposal A involves an initial cost of $15,000 and an annual operating cost
of $2,000 per year for the next 4 years. Thereafter, the operating cost is expected to increase by $100 per year. This equipment is expected to have a 10-year life with no salvage value.
Proposal B requires an initial investment of $28,000 and an annual operating cost of $1,200 per year for the first 3 years. Thereafter, theoperating cost is expected to increase by $120 per year. This equipment is expected to last for 20 years and will have a $2,000 salvage value. If the company's minimum attractive
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