Question: We plan to operate a professional dishwasher We need to

We plan to operate a professional dishwasher. We need to choose between two types of tablets: Kalgonit and Ludwig. One jumbo-pack of the former costs $200 and lasts for 3 years. The latter are two times cheaper but last for only 2 years. Ludwig tablets have also another disadvantage. They make the dishwasher outwear faster. When we operate it using Ludwig tablets we need to replace it after 5 years instead of 7 years. The cost of a new dishwasher is $500. Our current dishwasher is quite old-fashioned, and we plan to replace it with a new one after two years (regardless of which tablets we will use). Assuming that our real opportunity cost of capital is 9% which tablets we should buy? Treat all numerical values as given in real terms.

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  • CreatedJuly 26, 2013
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