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4. Springfield Works must install scrubbing equipment in its smokestacks to meet new EPA guidelines. They need scrubbing equipment which is customized to their smokestack
4. Springfield Works must install scrubbing equipment in its smokestacks to meet new EPA guidelines. They need scrubbing equipment which is customized to their smokestack arrangement. There are two competing choices available: CleanltCheap, which costs $5 million to install, and requires $2 million in annual maintenance costs during its four-year life Duro-Clean, which costs $10 million to install, and requires $2.2 million in annual maintenance costs during its twelve-year life. The introduction of scrubbing machines has no impact on revenues. The cash flows above are all expressed on an after-tax basis, so you don't need to calculate depreciation or taxes. It is believed that the new EPA guidelines will be in place indefinitely and the company will replace either of the machines with the same kind of machine at the end of its respective useful life. The company's cost of capital for this investment is 12%. a. Which of the scrubbing machines should Springfield Works choose? b. Would your answer change if you found out that, while the CleanltCheap machines reduce pollutants by just enough to meet the new EPA guidelines, the Duro-Clean machine reduces pollutants by an additional 20% per year
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