Question

1. Which equipment is preferred if the firm’s interest rate is 9%?  In PW terms how great is the difference?

Alternative	Equipment  A	Equipment  B
First Cost	$55,000	$25,000
Annual O & M	3,900	4,200
Salvage Value	0	5000
Overhaul (Year 6)	10000	Not required
Life, in years.	10	5

Answer 1

Therefore, Equipment B is better because the NPV is less negative than Equipment A.

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