Consider the cash flows for two types of models given in Table P5.51. Both models will have

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Consider the cash flows for two types of models given in Table P5.51.
Both models will have no salvage value upon their disposal (at the end of their respective service lives). The firm's MARR is known to be 12%.
Consider the cash flows for two types of models given

(a) Notice that the models have different service lives. However, model A will be available in the future with the same cash flows. Model B is available at one time only. If you select model B now, you will have to replace it with model A at the end of year 2. If your firm uses the present worth as a decision criterion, which model should be selected, assuming that the firm will need either model for an indefinite period?
(b) Suppose that your firm will need either model for only two years. Determine the salvage value of model A at the end of year 2 that makes both models indifferent (equally likely).

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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