A firm is concerned about the condition of some of its plant machinery. Bill James, a newly hired engineer, was assigned the task of reviewing the situation and determining what alternatives are available. After a careful analysis, Bill reports that there are five feasible, mutually exclusive alternatives. Alternative A: Spend $44,000 now repairing various items. The $44,000 can be charged as a current operating expense (rather than capitalized) and deducted from other taxable income immediately. These repairs are anticipated to keep the plant functioning for the next 7 years with operating costs remaining at present levels. Alternative B: Spend $49,000 to buy general purpose equipment.

Depreciation would be straight line, with the depreciable life equal to the 7-year useful life of the equipment. The equipment will have no end-of-useful-life salvage value. The new equipment will reduce operating costs $6000 per year below the present level.

Alternative C: Spend $56,000 to buy new specialized equipment. This equipment would be depreciated by sum-of-years' -digits Depreciation over its 7-year useful life. This equipment would reduce operating costs $12,000 per year below the present level. It will have no end-of useful-life salvage value. Alternative D: This alternative is the same as Alternative B, except that this particular equipment would reduce operating costs $7000 per year below the present level. Alternative E: This is the "do-nothing" alternative. If nothing is done, future annual operating costs are expected to be $8000 above the present level. This profitable firm pays 40% corporate income taxes. In their economic analysis, they require a 10% after-tax rate of return. Which of the five alternatives should the firm adopt?