2.14 A heat treating process (Process 1) can be added to a processing line for $30,000.

The annual operating costs are $12,000 and its life is expected to be 8 years with a $10,000 salvage value at that time. An alternative process (Process 2)

can be installed for $21,000. Its annual operating costs are $15,000 and its life is also expected to be 8 years with a $7,000 salvage value. In both cases, the annual increase in revenue due to the addition of the heat treating process is

$20,000. The company’s tax rate is 52% and the method of depreciation is SYD.

Compute the rate of return of each heat treating process after depreciation and taxes. On the basis of this rate of return analysis, which alternative should be selected?