Two mutually exclusive alternatives a and b both macrs-gds, Ask an Expert

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Two mutually exclusive alternatives, A and B (both MACRS-GDS 5 year property), are available. Alternative A requires an original investment of $100,000, has a useful life of 6 years, annual operating costs of $2,500, and a salvage value at the end of year k given by $100,000 (0.70)k. Alternative B requires an original investment of $150,000, has a life of 8 years, zero annual operating costs, and a salvage value at the end of year k given by $150,000(0.80)k. The after-tax MARR is 15% and a 40% tax rate is applicable. Suppose both options involve a loan of 40% of the investment cost, the loan rate is only 2% and the payment follows Plan 1 (pay the accumulated interest at the end of each interest period and pay the principal at the end of the loan period).

Use a planning horizon of 6 years and make your before-tax and after-tax recommendation based on annual worth (assume Do Nothing is not possible).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92746754

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