Alternative E1 E2 $65,000 Capital investment Annual expenses Useful life (years) Market value (at end of useful life) $14,000 $14,000 $9,000 5 20 $8,000 $13,000
Alternative E1 E2 $65,000 Capital investment Annual expenses Useful life (years) Market value (at end of useful life) $14,000 $14,000 $9,000 5 20 $8,000 $13,000
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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Question
A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the end product. The two best alternatives are a used piece of equipment (E1) and a new automated model (E2). The economic estimates for each are shown in the accompanying table. The MARR is 15% per year. Solve, a. Which alternative is preferred, based on the repeatability assumption? b. Show, for the coterminated assumption with a five-year study period and an imputed market value for Alternative B, that the AW of B remains the same as it was in Part (a). [And obviously, the selection is the same as in Part (a).] Explain why that occurs in this problem.
Transcribed Image Text:Alternative
E1
E2
$65,000
Capital investment
Annual expenses
Useful life (years)
Market value (at end
of useful life)
$14,000
$14,000
$9,000
5
20
$8,000
$13,000
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