The management of an electronics manufacturing firm believes it is desirable to automate its production facility. The

Question:

The management of an electronics manufacturing firm believes it is desirable to automate its production facility. The automated equipment would have a l0-year life with no salvage value at the end of 10 years. The plant engineering department has surveyed the plant and suggested there are eight mutually exclusive alternatives available. If the firm expects a 10% rate of return, which plan, if any, should it adopt?

Initial Cost Net Annual Benefit. Plan (thousands) $265 220 (thousands) $1 39 3 180 26 100 15 57 23 305 130 245 47 165 33

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...