The Elizabeth Candies Co. is considering the purchase of a new robotic palletizer and is comparing two

Question:

The Elizabeth Candies Co. is considering the purchase of a new robotic palletizer and is comparing two suppliers—the Schibrowski Co. and the Rogers Co. The Schibrowski robot system costs $84,000 with a projected annual operating cost and maintenance cost of $22,000. It’s salvage value is $30,000 after 7 years. The Rogers system costs $102,000 with a projected annual operating and maintenance cost of $19,000 and a salvage value of $36,000 after 7 years. Which system is preferred if the cash flows are discounted annually at 12 percent?

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...