Different types of production lines for new solar panel

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Reference no: EM131794654

Question: Solatron is trying to decide between two different types of production lines for its new solar panel manufacturing facility. They plan to make and sell solar panels indefinitely, so if a production line wears out it must be replaced.

	Option A	Option B
Cost	$200,000	$300,000
Useful Life	4 years	6 years
Pretax annual operating costs	$70,000	$50,000

Solatron uses straight-line depreciation, has a tax rate of 40% and uses a discount rate of 10%.

A. What is the Operating Cash Flow for Option A and Option B?

B. What is the Equivalent Annual Cost for Option A?

C. What is the Equivalent Annual Cost for Option B?

D. Which option should Solatron select? Why?

Reference no: EM131794654

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