A Turkish Refinery Co. wishes to install an air pollution control system in its facility. The system comprises four types of equipment that involve capital investment and annual recurring costs as given in Table. Assume a useful life of 10 years for each type of equipment, no salvage value, and that the company wants a minimum return of 10% on its capital.

Based on an incremental external rate of return analysis, which equipment should be chosen?

(Hint: All alternatives are feasible. Therefore, you do not have to calculate their individual ERR values. You should only calculate the ERR of the differences).

(Hint2: Be careful to put a negative sign for the cost and investment values in your calculations.)

	A	B	C	D
Investment	200,000	276,000	300,000	325,000
Annual recurring costs:
Power	64,000	59,000	36,000	28,000
Labor	120,000	136,000	184,000	196,000
Maintenance	96,000	64,000	22,000	10,000
Taxes and insurance	50,000	54,000	68,000	72,000
Total annual recurring costs	330,000	313,000	310,000	306,000
Salvage value	0	0	0	0
Useful life (year)	10	10	10	10