Question: A small-business corporation is considering whether to replace some equipment in the plant. An analysis indicates there are five alternatives in addition to the do-nothing

A small-business corporation is considering whether to replace some equipment in the plant. An analysis indicates there are five alternatives in addition to the do-nothing option, Alt. A. The alternatives have a 5-year useful life with no salvage value. Straight-line depreciation would be used.

Before-Tax Uniform

Cost Annual Benefits

Alternatives (thousands) (thousands)

A $ 0 $ 0

B 25 7.5

C 10 3

D 5 1.7

E 15 5

F 30 8.7

The corporation has a combined federal and state income tax rate of 20%. If the corporation expects a 10% after-tax rate of return for any new investments, which alternative should be selected?

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