A new alloy can be produced by Process A, which costs $200,000 to implement. The operating cost

Question:

A new alloy can be produced by Process A, which costs $200,000 to implement. The operating cost will be $15,000 per quarter with a salvage value of $25,000 after its 2-year life.

Process B will have a first cost of $250,000, an operating cost of $10,000 per quarter, and a $40,000 salvage value after its 4 year life. The interest rate is 8% per year compounded quarterly. Using present value analysis which process should be selected?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...