Two methods can be used for producing solar panels for electric power generation. Method 1 will have

Question:

Two methods can be used for producing solar panels for electric power generation. Method 1 will have an initial cost of $550,000, an AOC of $160,000 per year, and $125,000 salvage value after its 3-year life. Method 2 will cost $830,000 with an AOC of $120,000, and a $240,000 salvage value after its 5-year life. Assume your boss asked you to determine which method is better, but she wants the analysis done over a 3-year planning period. You estimate the salvage value of method 2 will be 35% higher after 3 years than it is after 5 years. If the MARR is 10% per year, which method should the company select?

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...

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