processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it...
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processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Four different pieces of equipment, all with 20-year lives, are being considered. A $10,000 $4,000 B $18,000 $6,000 $25,000 $7,500 D $30,000 $9,000 Initial Cost Annual Benefit (savings in materials cost) Annual Operating Cost $2,000 $3,000 $3,000 $4,000 The company can obtain a 15% annual return on its investment in other projects and is willing to invest money on the processing equipment only as long as it can obtain 15% annual return on each increment of money invested. Which one, if any, of the alternatives should be selected? Use a challenger-defender rate of return analysis (pair-wise incremental analysis). Set NPW = 0 and use do-nothing as an option
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