A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed - Model A costs $250,000 for purchasing and Installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and maintenance (O&M) cost of $24,000 and the cost increases each year by 5% over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (0&M) cost of $11,000 and the cost increases each year by 7% over the previous year's O&M cost. if the company has MARR of 10%, select the correct statement. O Select Model A because it has annual equivalent cost of $77,764 which is less than Model B O Select Model B because it has annual equivalent cost of S73,044 which is less than model A O Select Model A because by selecting Model B the company will have increase of incurred annual equivalent cost of $4,102 O Select Model B because by selecting Model A the company will have increase of incurred annual equivalent cost of $4,107
A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed - Model A costs $250,000 for purchasing and Installation. The model has service life of 6 years and at the end of the sixth year has estimated salvage value of $50,000. The model in the first year has an operational and maintenance (O&M) cost of $24,000 and the cost increases each year by 5% over the previous year's O&M cost. • Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has estimated salvage value of $30,000. The model in the first year has an operational and maintenance (0&M) cost of $11,000 and the cost increases each year by 7% over the previous year's O&M cost. if the company has MARR of 10%, select the correct statement. O Select Model A because it has annual equivalent cost of $77,764 which is less than Model B O Select Model B because it has annual equivalent cost of S73,044 which is less than model A O Select Model A because by selecting Model B the company will have increase of incurred annual equivalent cost of $4,102 O Select Model B because by selecting Model A the company will have increase of incurred annual equivalent cost of $4,107
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 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...
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Transcribed Image Text:A small chemical manufacture company needs to replace an old high-shear mixer. Two different models have been proposed.
• Model A costs $250,000 for purchasing and installation. The model has service life of 6 years and at the end of the sixth year has
estimated salvage value of $50,000. The model in the first year has an operational and malntenance (O&M) cost of $24,000 and the cost
increases each year by 5% over the previous year's O&M cost.
• Model B costs $175,000 for purchasing and installation. The model has service life of 3 years and at the end of the third year has
estimated salvage value of $30,000. The model in the first year has an operational and maintenance (O&M) cost of $11,000 and the cost
increases cach year by 7% over the previous year's O&M cost.
If the company has MARR of 10%, select the correct statement.
O Select Model A because it has annual equivalent cost of $77,764 which is less than Model B
O Select Model B because it has annual equivalent cost of $73,044 which is less than model A
O Select Model A because by selecting Model B the company will have increase of incurred annual equivalent cost of $4,102
O Select Model B because by selecting Model A the company will have increase of incurred annual equivalent cost of $4,102
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