Environmental protection equipment at a petroleum refinery

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Reference no: EM13740028

Two mutually exclusive alternatives are being considered for the environmental protection equipment at a petroleum refinery. One of these alternatives must be selected. the estimated cash flows for each alternative are as follows: (6.5)

ALTERNATIVE A:

capital investment= $20,000

annual expenses= $5,500

market value at end of useful life= $1,000

useful life= 5 years

ALTERNATIVE B:

capital investment= $38,000

annual expenses= $4,000

market value at end of useful life= $4,200

useful life= 10 years

a) Which environmental protection equipment alternative should be selected? the firms MARR is 20% per year. Assume the equipment will be needed indefinitely

b) Assume the study period is shortened to five years. The market value of alternative B after five years is estimated to be $15,000. Which alternative would you recommend?

Reference no: EM13740028

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