The New England Soap Company is considering

adding some processing equipment to the plant to

aid in the removal of impurities from some raw

materials. By adding the processing equipment,

the firm can purchase lower-grade raw material at

reduced cost and upgrade it for use in its products.

Four different pieces of processing equipment

are being considered:

A B CD

Initial investment $10,000 $18,000 25,000 $30,000

Annual saving in 4,000 6,000 7,500 9,000

materials costs

Annual operating 2,000 3,000 3,000 4,000

cost

The company can obtain a 15% annual return on its

investment in other projects and is willing to invest

money on the processing equipment only as long as

it can obtain 15% annual return on each increment

of money invested.Which one, if any, of the alterna-

tives should be selected? Use a challenger-defender

rate of return analysis.