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It is estimated that the annual heat-loss cost in a small power plant is $5,200. Two mutually exclusive proposals have been formulated that will reduce the loss. Proposal A will reduce heat loss by 60% and cost $3,000. Proposal B will reduce heat loss by 55% and cost $2,500. If the interest rate is 8% and the plant will benefit from the reduction in heat loss for ten years, using the annual equivalent on incremental investment, which proposal should be accepted?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M91229082

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