Determine which mutually exclusive water purification option

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Reference no: EM131312276

Blue Electronics is considering the purchase of a water filtration system to assist in circuit board manufacturing. The system costs $40,000. It has an expected life of 7 years at which time its salvage value will be $7,500. The estimated operating and maintenance expenses are $2,000 per year. In lieu of purchasing the filtration system, Blue Electronics will have to pay Port City $12,000 per year for water purification. If Blue purchases the system, they will not need water purification from Port City. Blue Electronics must borrow half of the purchase price, but they cannot start repaying the loan for 2 years. The bank has agreed to three equal annual payments, with the first payment due at the end of year 2. The loan interest rate is 8 percent compounded annually. Blue Electronics' MARR is 10 percent compounded annually. Utilizing an annual cash·-flow analysis determine which mutually exclusive water purification option Blue Electronics should select? Why? Please show how to work without Excel.

Reference no: EM131312276

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