A European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,while being economical. The two alternatives available have the following estimates:SystemFirst Cost, $CFBT, $ per YearLife, YearsAB-150,00060,000-80,00020,0005The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed atan after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation iscalculated; however, system B can be sold after 5 years for an estimated 8% of its first cost. System A has no anticipated salvagevalue. Determine which is more economical using an annual worth (AW) analysis worked by hand.The annual worth analysis for system A is determined to be $1The annual worth analysis for system Bis determined to be $System BD is selected.

Equivalent Worth Analysis: It is applied when the life of the two projects or investments is not…

Answered: The annual worth analysis for system A…

The annual worth analysis for system A is determined to be $ The annual worth analysis for system Bis determined to be $1 System O D is selected.

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 European candy manufacturing plant manager must select a new irradiation system to ensure the safety of specific ingredients,
while being economical. The two alternatives available have the following estimates:
System
First Cost, $
CFBT, $ per Year
Life, Years
A
B
-150,000
60,000
-80,000
20,000
5
The company is in the 35% tax bracket and assumes classical straight line depreciation for alternative comparisons performed at
an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is
calculated; however, system B can be sold after 5 years for an estimated 8% of its first cost. System A has no anticipated salvage
value. Determine which is more economical using an annual worth (AW) analysis worked by hand.
The annual worth analysis for system A is determined to be $1
The annual worth analysis for system Bis determined to be $
System B
D is selected.

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