Two processes can be used for producing a polymer that reduces friction loss in engines. Process K,

Question:

Two processes can be used for producing a polymer that reduces friction loss in engines. Process K, which is currently in place, has a market value of $165,000 now, an operating cost of $69,000 per year, and a salvage value of $50,000 after 1 more year and $40,000 after its maximum 2-year remaining life. Process L, the challenger, will have a first cost of $230,000, an operating cost of $65,000 per year, and salvage values of $100,000 after 1 year, $70,000 after 2 years, $45,000 after 3 years, and $26,000 after its maximum expected 4-year life. The company's MARR is 12% per year. You have been asked to determine which process to select when

(a) A 2-year study period is used

(b) A 3-year study period is used.

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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...