Which proposal should be accepted for production horizon

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Reference no: EM131971020

Question: It is estimated that the annual sales of an energy saving device will be 20,000 the fust year and increase by 10.000 per year until 50,000 units are sold during the fourth year. Proposal A is to purchase manufacturing equipment costing $120.000 with an estimated salvage value of $15,000 at the end of 4 years. Proposal B is to purchase equipment costing $280,000 with an estimated salvage value of $32.000 at the end of 4 years. The variable manufacturing cost per unit under proposal A is estimated to be $8.00r but is estimated to be only $2.60 under proposal B. If the interest rate is 9%. which proposal should be accepted for a 4-year production horizon?

Reference no: EM131971020

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