Question
Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,500,000, has annual operating and maintenance costs of
Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,500,000, has annual operating and maintenance costs of $950,000, and requires overhauls every 5 years at a cost of $1,725,000. Design B is more sophisticated, including computer controls; it has an initial cost of $5,450,000, has annual operating and maintenance costs of $800,000, and requires overhauls every 10 years at a cost of $2,575,000.
a. Using a 6.0 %/year interest rate, determine the capitalized cost for Design A and Design B.
b. Which design should be chosen?
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