Question: Two different methods of solving a production problem are under consideration. Both methods are expected to be obsolete in six years. Method A would cost

Two different methods of solving a production problem are under consideration. Both methods are expected to be obsolete in six years. Method A would cost $80,000 initially and have annual operating costs of $22,000 a year. Method B would cost $52,000 and costs $17,000 a year to operate. The salvage value realized would be $20,000 with method A and $15,000 with method B. Investments in both methods are subject to a five-year MACRS property class. The firm's marginal income tax rate is 40%. The firm's MARR is 20%. What would be the required additional annual revenue for method A such that an engineer would be indifferent to choosing one method over the other?

Step by Step Solution

3.20 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

Let X denotes the additional annual revenue above 14000 fo... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

891-B-A-F-A (2684).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!