Ron Booth, the CEO for Sunders Manufacturing, was wondering which of two pollution control systems he should choose. The firm$$s current production process produces a gaseous and a liquid residue. A recent state law mandated that emissions of these residues be reduced to levels considerably below current performance. Failure to reduce the emissions would invoke stiff fines and possible closure of the operating plant. Fortunately, the new law provided a transition period, and Ron had used the time wisely. His engineers had developed two separate proposals. The first proposal involved the acquisition of scrubbers for gaseous emissions and a treatment facility to remove the liquid residues. The second proposal was more radical. It entailed the redesign of the manufacturing process and the acquisition of new production equipment to support this new design. The new process would solve the environmental problem by avoiding the production of residues.

Although the equipment for each proposal normally would qualify as seven$-$year property, the state managed to obtain an agreement with the federal government to allow any pollution abatement equipment to qualify as five$-$year property. State tax law follows federal guidelines. Both proposals qualify for the five$-$year property benefit.