Zuker Distributors handles the warehousing of perishable foods and is considering replacing one of its primary cold storage units. One supplier has offered a unit for $250,000 with an expected life of 10 years. The unit is projected to reduce electricity costs by $50,000 per year. However, it requires a $20,000 refurbishing every two years, beginning two years after purchase.

Zuker Distributors handles the warehousing of perishable foods and is considering replacing one of its primary cold storage units. One supplier has offered a unit for $250,000 with an expected life of 10 years. The unit is projected to reduce electricity costs by $50,000 per year. However, it requires a $20,000 refurbishing every two years, beginning two years after purchase. Another supplier has offered a cold storage unit with similar capabilities for $300,000. It will produce the same savings in electricity costs, but requires refurbishing every five years at a cost of $40,000. Zuker’s is 8.5%. Use NPV to determine which cold storage unit Zuker should select.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...