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D8=6 An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment at its manufacturing plant in the United Kingdom.

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D8=6

An American multinational company is now considering two mutually exclusive alternatives for the environmental protection equipment at its manufacturing plant in the United Kingdom. One of these alternatives must be selected. The estimated cash flows for each alternative are listed in the below table. Alternative A Alternative B Capital investment Annual expenses (20,000 + D8 ~ 1,000) (5,500 + D8 ~ 1,000) (1,000 + D8 x 1,000) 5 years (38,000 + D8 x 1,000) (4,000 + D8 x 1,000) (4,200 + D8 x 1,000) Market value at end of useful life Useful life 10 years Assume that the equipment will be needed indefinitely and the firm's MARR relative to British pound (GBP) is 20% per year. (a) (i) To compare which environmental protection equipment alternative is better, what assumption do you need to make (Repeatability assumption or Co-terminated assumption)? (1 mark) (ii) Using your assumption above, analyse which environmental protection equipment alternative should be selected? Use 4 decimal places of the compound interest factors to do your calculation. Show detailed steps of your analysis. (Correct your final answer to 2 decimal places.) (7 marks)

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