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Your company evaluates proposals using a 2.5-year payback period. You have two alternatives for a new boring machine. Alt. A costs $10,000 and will last for six years. Alt.A will save $5,000 in year one and $2,000 in year two. Alt. B will cost $15,000 and will last for six years. Alt.B will save $7,000 in year one and $1,000 in year two. Assume a MARR of 12%. (a) What savings in year 3 is needed to make Alt. A an acceptable project? (b) What savings in year 3 is needed to make B an acceptable project? (c) If you believe that the year 3 savings will be $7,000 for A and $9,000 for B, which will you buy?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91622310

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