Question
Aqua Tech Testing is considering investing in a new testing device. It has two options. Option A would have an initial lower cost but would
Aqua Tech Testing is considering investing in a new testing device. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after five years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Optio B machine is of a higher initial quality, the company expects it to have a salvage value at the end of its useful life. The company provided the following: Option A Option B Initial cost $90,000 180,000 $170,000 Annual cash inflows 140,000 Annual cash outflows 160,000 108,000 Cost to rebuild (end of year 5) 26,500 -0- -0- 27,500 Salvage value Estimated useful life 8 years 8 years
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