A firm is considering three mutually exclusive alternatives as part of a production improvement program The alternatives are as follows For each alternative, the salvage value at the end of useful life is zero At the end of 10 years Alt, A could be replaced by another A with identical cost and bene...

Year Plan A Cash Flow Plan B Cash Flow Plan B Rather than Plan A Plan C Cash flow Plan C ...

A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives

Question:

A firm is considering three mutually exclusive alternatives as part of a production improvement program. The alternatives are as follows:

A B Installed cost Uniform annual benefit Useful life, in years $15,000 $10,000 1,625 $20,000 1.625 1.890 10 20 20

For each alternative, the salvage value at the end of-useful-life is zero. At the end of 10 years Alt, A could be replaced by another A with identical cost and benefits. The MARR is 6%. If the analysis period is 20 years, which alternative 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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...