Question: A company has to choose between 2 facilities. Facility A costs $6.3 million and has an economic life of 7 years. The maintenance costs of

A company has to choose between 2 facilities. Facility A costs $6.3 million and has an economic life of 7 years. The maintenance costs of facility A are $180,000 per year. Facility B costs $8.4 million and it lasts 10 years. The annual maintenance costs are $300,000 per year. Both facilities are depreciated by straight line method. Assume zero salvage value. The corporate tax rate is 40 percent. Assume that the revenues are same.

If the appropriate discount rate is 10 percent, which facility the company should choose?

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