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Irina18 [472]
3 years ago
12

Two methods can be used for producing solar panels for electric power generation. Method 1 will have an initial cost of $550,000

, an annual operating cost of $160,000 per year, and $125,000 salvage value after its three-year life. Method 2 will cost $830,000 with an annual operating cost of $120,000. and a $240,000 salvage value after its five-year life. The company has asked you to determine which method is better, but it Wants the analysis done over a three-year planning period. The salvage value of Method 2 will be 35% higher after three years than it is after five years. If the company's minimum attractive rate of return is 10% per year, which method should the company select?
Business
1 answer:
Natasha_Volkova [10]3 years ago
5 0

Answer:

the company should choose method 1

Explanation:

                                                  Method 1                Method 2

Initial outlay                              $550,000               $830,000

operating costs (years 1,2,3)    $160,000                $120,000

salvage value                            $125,000               $324,000

we must determine which alternative has the lowest present value:

method 1 = $550,000 + $160,000/1.1 + $160,000/1.1² + $160,000/1.1³ - $125,000/1.1³ = $550,000 + $145,455 + $132,231 + $120,210 - $93,914 =  <u>$853,982</u>

method 2 = $830,000 + $120,000/1.1 + $120,000/1.1² + $120,000/1.1³ - $324,000/1.1³ = $830,000 + $109,091 + $99,174 + $90,158 - $243,426 = $884,996

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2 years ago
Fresh fish is not an effective form of money. What essential characteristic of money does fresh fish lack that most makes it ine
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Medium of exchange

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4 0
3 years ago
"A customer buys a Brokered CD for $100,000. Upon receipt of his next account statement, the customer sees that the market value
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With its current levels of input use, a firm's MRTS is 1/3 (when capital is on the vertical axis and labor is on the horizontal
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Answer: A. the firm could produce 3 more units of output if it increased its use of capital by one unit (holding labor constant).

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2 years ago
The rate on T-bills is currently 5%. P. Tree Company stock has a beta of 1.69 and a required rate of return of 15.4%. According
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11.15%

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