Question: A manufacturing company needs to replace an obsolete assembly line and is considering two new lines offered by two competing suppliers: Initial Cost O&M Salvage

A manufacturing company needs to replace an obsolete assembly line and is considering two new lines offered by two competing suppliers:

Initial Cost O&M Salvage value Life

Line A $ 15 Million $ 400,000/Year $ 1 Million 7 Years

Line B $ 25 Million $ 300,000/Year $ 2.5 Million 21 Years

The Companys cost of capital is 10%

  1. Compare the PW of the costs of these two alternatives
  2. Calculate the EUAC of the two alternatives and confirm the conclusion you have reached for question 1 above
  3. If you were the manager in charge of deciding which alternative to select, what additional data would you need?

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