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Problem 2 (20 points) Two mutually exclusive alternatives are being considered to buy environmental protection equipment at a petroleum refinery facility. One of the alternatives
Problem 2 (20 points) Two mutually exclusive alternatives are being considered to buy environmental protection equipment at a petroleum refinery facility. One of the alternatives must be chosen. The company uses a MARR of 12%. The estimated cash flows are presented as follows: Equipment X Equipment Y Capital investment $20,000 $38,000 Annual expenses 5,500 3,500 Salvage value 1,000 4,200 Useful life (years) 10 a. Determine which equipment should be chosen for an analysis period of 10 years using the present worth method. (8 pts) b. What is the applicable decision criterion? (2 pts) C. If the analysis period is reduced to 5 years and Equipment Y has an estimated salvage value of $20,000 at the end of the fifth year, which equipment would you recommend? Why? (6 pts) Remember to clearly show the cash flow diagram(s) and the necessary equivalent model(S). (4 pts)
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