6-41. 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: (6.5)

Alternative A Alternative B Capital investment $20,000 $38,000 Annual expenses 5,500 4,000 Market value at 1,000 4,200 end of useful life Useful life 5 years 10 years

a. Which environmental protection equipment alternative should be selected? The firm’s MARR is 20% per year. Assume the equipment will be needed indefinitely.

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?