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:

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?

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