The tabulation of the incremental cash flows between alternatives A and B is shown on the next

Question:

The tabulation of the incremental cash flows between alternatives A and B is shown on the next page. Alternative A has a 3-year life and alternative B a 6-year life. If neither alternative has a salvage value, what is

(a) The first cost of alternative A

(b) The first cost of alternative B?

Incremental

Year Cash Flow (B – A), $

0 ........... –20,000

1 ........... 5,000

2 ........... 5,000

3 ........... 12,000

4 ........... 5,000

5 ........... 5,000

6 ........... 5,000

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...