A Company is considering two alternative methods of producing a new product. The relevant data concerning the

Question:

A Company is considering two alternative methods of producing a new product. The relevant data concerning the alternatives are presented below.
Alternative I Alternative II
Initial Investment $50,000 $110,000
Annual receipts $36,000 $50,000
Annual Disbursements $16,000 $10,000
Annual depreciation $12,000 $16,000
Expected Life 5 years 7 years
$0 $0
At the end of the useful life of whatever equipment is chosen, the product will be discontinued. The company's tax rate is 50 percent, and its is 11 percent.
Calculate the of each alternative.
a. $4,276 ; $11,123
b. $9,136 ; $21,936
c. $13,236 ; $22, 577
d. $913.60 ; $2,193.60
Calculate the for each alternative.
a. 7% ; 9%
b. 22% ; 32%
c. 18% ; 17%
d. 1.8% ; 1.7%
Of the two Alternatives from questions one and two, which Alternative should the company chose?
a. Alternative I
b. Alternative II
c. Both
d. Neither
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