13. A company is considering replacing its air conditioner. Management has narrowed the choice to two alternatives that offer comparable performance and considerable savings over their present system. The effective annual interest rate is 8%. What is the benefit-cost ratio of both alternatives? Which alternative should be selected?

Option 1

initial cost: $8,000, annual savings= $1,000, salvage value= $500, life= 15 years

option 2 initial cost: $10,000, annual savings= $1,200, salvage value= -$1,250, life=15 years