Pollution control equipment must be purchased to remove the suspended organic material from liquid. being discharged from a vegetable packing plant. Two alternative pieces of equipment are available that would accomplish the task. A Filterco unit presently costs $7000 and has a 5-year useful life. A Duro unit, on the other hand, now costs $10,000 but will have a l0-year useful life.
With inflation, equipment costs are rising at 8% per year, compounded annually, so when the Filterco unit needed to be replaced, the cost would be much more than $7000. Based on a l0-year analysis period, and a 20% minimum attractive rate of return, before taxes, which piece of pollution control equipment should be purchased?