M Corp is deciding whether or not to purchase either of two equipments. Option A would entail an lower initial cost but would require a significant incurring of cost for rebuilding after 4 years. Option B would require no rebuilding expenses, but its maintenance costs is higher. Since the Option B equipment is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows. The company’s interest rate for capital expenditures is 8%. Using the net present value tool, which Option should be taken by M Corp? Decide with reasons. (50%)
M Corp is deciding whether or not to purchase either of two equipments. Option A would entail
an lower initial cost but would require a significant incurring of cost for rebuilding after 4 years.
Option B would require no rebuilding expenses, but its maintenance costs is higher. Since the
Option B equipment is of initial higher quality, it is expected to have a salvage value at the end
of its useful life. The following estimates were made of the
rate for capital expenditures is 8%. Using the
reasons. (50%)
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