An engineer has designed 2 alternative systems to cater for customer's plant operation. System 1 will need initial investment of $150,000 and will have an annual operating cost of $20,000 with salvage price of $5,000 after 4 years. System 2 will need an investment of $180,000 and the annual operating cost will be $15,000. System can be salvaged for $8,000 after 6 years. At an interest rate of 10% per year, which system should be proposed by the engineer on the basis of a present worth analysis? Use equations to solve this problem.

An engineer has designed 2 alternative systems to cater for customer's plant operation. System 1 will need initial investment of $150,000 and will have an annual operating cost of $20,000 with salvage price of $5,000 after 4 years. System 2 will need an investment of $180,000 and the annual operating cost will be $15,000. System can be salvaged for $8,000 after 6 years. At an interest rate of 10% per year, which system should be proposed by the engineer on the basis of a present worth analysis? Use equations to solve this problem.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2TP: Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new...

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