Your company has to come up with a new water treatment plant according to new environmental regulations.
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Your company has to come up with a new water treatment plant according to new environmental regulations. There are two options. Option A entails an initial investment of $40,000 and will have a life of 6 years. The maintenance cost of Plant A from year 1 to year 6 will be as follows: $8000 (year 1), $14,000 (year 2), $13,000 (year 3), $12,000 (year 4), $11,000 (year 5) and $10,000 (year 6). Option B entails an initial investment of $20,000 and will have a life of 3 years. The maintenance cost of Plant B from year 1 to year 3 will be as follows: $7,000 (year 1), $13,000 (year 2) and $13,000 (year 3). Which Plant the company should choose? The discount rate is 10%. (assume that these options are repeatable options)
Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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