Two mutually exclusive alternatives are being considered forthe environmental protection equipment at a petroleumrefinery. One of these alternatives must be selected. Theestimated cash flows for each alternative are as follows:Alternative AAlternative BCapital InvestmentAnnual Expenses$20,000$38,0005,5004,000Market Value at end of useful1,0004,200lifeUseful life5 years10 yearsWhich alternative is preferred, based on the repeatabilityassumption? Use AW Method.a.b. Assume the study period is shortened to five years. The marketvalue of Alternative B after five years is estimated to be $15,000.Which alternative would you recommend? Use AW method.

The AW method is commonly used for comparing alternatives. As illustrated in Chapter 4, AW means…

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The estimated cash flows for each alternative are as follows: Capital Investment Annual Expenses Market Value at end of useful life Useful life Alternative A $20,000 5,500 1,000 5 years Alternative B a. Which alternative is preferred, based on the repeatability assumption? Use AW Method. $38,000 4,000 4,200 10 years b. Assume the study period is shortened to five years. The market value of Alternative B after five years is estimated to be $15,000. Which alternative would you recommend? Use AW method.

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. The estimated cash flows for each alternative are as follows: Capital Investment Annual Expenses Market Value at end of useful life Useful life Alternative A $20,000 5,500 1,000 5 years Alternative B a. Which alternative is preferred, based on the repeatability assumption? Use AW Method. $38,000 4,000 4,200 10 years b. Assume the study period is shortened to five years. The market value of Alternative B after five years is estimated to be $15,000. Which alternative would you recommend? Use AW method.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3MAD

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