T wo equipment ‘A’ and ‘B’ have the capability of satisfactorily performing a required function.

Equipment ‘B’ has an initial cost of ` 160,000 and expected salvage value of ` 20,000 at the end of its four-year service life. Equipment ‘A’ costs ` 45,000 less initially, with an economic life one year shorter than that of ‘B’; but ‘A’ has no salvage value, and its annual operating costs exceed those of ‘B’ by ` 12,500. When the required rate of return is 15%, state which alternative is preferred when comparison is by

a. the common multiple method

b. A 2 year study period (assuming the assets are needed for only 2 years).