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Alternative A has an initial cost of $-130,000, an annual cash-flow before taxes of $60,000, and a depreciable life of 3 years. Alternative B
Alternative A has an initial cost of $-130,000, an annual cash-flow before taxes of $60,000, and a depreciable life of 3 years. Alternative B has an initial cost of $-95,000, an annual cash-flow before taxes of $20,000, and a depreciable life of 5 years. The company considering the alternatives is in the 35% tax bracket and assumes straight line depreciation with an after-tax minimum acceptable rate of return (MARR) of 8% per year. A salvage value of zero is used when depreciation is calculated; however, system B can be sold after 5 years for an estimated 6% of its first cost. System A has no anticipated salvage value. Determine which is more economical using an annual worth (AW) analysis. The annual worth analysis for system A is determined to be $ 25361 The annual worth analysis for system B is determined to be $ 12660 System A is selected.
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