Answered: erating cost

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A production plant manager has been presented with two proposals for automating an assembly process. Proposal A involve an initial cost of $15000 and an annual operating cost of $2000 per year for the next 4 years . Thereafter, the operating cost is expected to be $2700 per year. This equipment is expected to have a 20-year life with no salvage value. Proposal B requires an initial investment of $25000 and an annual operating cost of $1200 per year for the first 3 years. Thereafter, the operating cost is expected to increase by $120 per year. This equipment is expected to last 20 years and have a salvage value of $2000. If the company's MARR is 10%, which should be accepted using ROR analysis?

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