Reference no: EM132608834

Sky Corporation is currently evaluating two mutually exclusive pollution control devices. The devices have differing initial costs, differing maintenance costs over their operational lives, and different operating lives. The real discount rate is 6%. The real cash flows for each device are as follows:

Time      Device S              Device T

0          ($90,000)          ($260,000)
1           ($6,000)            ($3,500)
2          ($6,000)            ($3,500)
3           ($6,000)           ($3,500)
4            ---               ($3,500)
5            ---                 ($3,500)
6            ---                ($3,500)

Required:

a. Discuss the problem in evaluating the two projects with the basic NPV.

b. Evaluate the devices based on the use of comparable time horizons at the end of which both projects are complete.