New instrumentation is needed to monitor the level of environmental emissions at a large manufacturing plant. Two available systems give identical performance. One system cost $100,000 and will last for 10 years; the other costs $60,000 and will last for 6 years. The scrap value is negligible in both cases. Both systems also have an annual maintenance cost of $1,000/year. Is one of the systems preferable to the other based on cost? Assume the company's interest is 10 percent.
New instrumentation is needed to monitor the level of environmental emissions at a large manufacturing plant. Two available systems give identical performance. One system cost $100,000 and will last for 10 years; the other costs $60,000 and will last for 6 years. The scrap value is negligible in both cases. Both systems also have an annual maintenance cost of $1,000/year. Is one of the systems preferable to the other based on cost? Assume the company's interest is 10 percent.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 20P: The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting,...
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