Question
There are two alternatives for purchasing a new cut-and-finish equipment. The cash flow details of alternatives are as follows; Alternative-1: Initial purchase cost = $2,00,000,
There are two alternatives for purchasing a new cut-and-finish equipment. The cash flow details of alternatives are as follows; Alternative-1: Initial purchase cost = $2,00,000, Annual operating and maintenance cost = $20,000, Expected salvage value = $.2,25,000, Useful life = 9 years.Alternative-2: Initial purchase cost = $2,00,000, Annual operating and maintenance cost = $.45,000, Expected salvage value = $50,000, Useful life = 6 years. Using present worth method, find out which alternative should be selected, if the rate of interest is 24% per year, and the study period is 5 years? Assume that the salvage values at the end of the study period are the same as the previous case.
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