All assets are depreciated using straight line method

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Reference no: EM131821459

Pinion Potato Chip Inc. must purchase new potato peeling equipment for its plant in Union City, Tennessee. The plant engineer has determined the following three setups are possibilities:

Naked Peel Skinner Peel-o-Matic

First Cost: $50,000 $50,000 $50,000

Annual Costs: $6,000 $5000 $5,000

Declared Salvage Value 12 % of FC $5,500 $10,000

Useful Life 6 years 6 years 6 years

Actual Salvage Value $6,500 $5,500 $12,000

All assets are depreciated using straight line method. Determine which setup should be chosen if the MARR for the firm is 10% and the marginal tax rate is 34%. What is the NPW of each and what would you choose?

A) Naked Peel: -52,815; Skinner: -50,285; POM: -48,111; POM

B) Naked Peel: -42,594; Skinner: -39,949; POM: -46,171; POM

C) Naked Peel: -21,894; Skinner: -24,645; POM: -38,385; Naked Peel

Reference no: EM131821459

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