Whether firm will need either model for an indefinite period

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Reference no: EM13190823

Consider the cash flows for 2 types of models given.

Both models will have no salvage value upon their disposal (at the end of their respective service lives). The firm's MARR is known to be 12%.

Project's Cash Flow

n Model A Model B

0 -$8,000 -$15,000

1 3,500 10,000

2 3,500 10,000

3 3,500 -------

A) Notice that the models have different service lives. However, model A will be available in the future with the same cash flows. Model B is available at 1 time only. If you select model B now, you will have to replace it wil model A at the end of year 2. If your firm uses the present worth as a decision criterion, which model should be selected, assuming that the firm will need either model for an indefinite period?

Reference no: EM13190823

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