Question

Tulsa Company is considering investing in new bottling equipment and has two options:
Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa’s cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa’s controller:


Required:
Using the NPV method, determine which option Tulsa shouldselect.


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  • CreatedFebruary 27, 2015
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