7-37. An industrial coal-fired boiler for process steam is equipped with a 10-year-old electrostatic precipitator (ESP). Changes in coal quality have caused stack emissions to be in noncompliance with federal standards for particulates. Two mutually exclusive alternatives have been proposed to rectify this problem (doing nothing is not an option).

New Baghouse New ESP

Capital investment $1,140,000 $992,500

Annual operating expenses 115,500 73,200

The life of both alternatives is 10 years, the effective income tax rate is 40%, and the after-tax MARR is