Another case of multiple alternatives in Q 15 is where there is a fixed horizon and the
Question:
Another case of multiple alternatives in Q 15 is where there is a fixed horizon and the alternative may not have lives that match that horizon. Consider the case where alternative X has a 6-year life and alternative Y has a 4-year life. You need the capability for 6 years. MARR is 10%. To compare these two cases, use a 6 year horizon and plan on replacing Y at the end of 4 years. However, since the replacement Y will be used for only 2 years, it is necessary to also know the 2-year salvage value for Y. The data for the two alternatives are as follows (just including initial cost and salvage values:
Alternative X | Alternative Y | |
Initial cost | $15,000 | $22,000 |
Life | 4 years | 6 years |
Salvage Value at Life | $2,000 | $1,000 |
Salvage value at 2 years | $4,000 | N/A |
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill