Which plant should the company choose

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Reference no: EM13302464

PB International Company is trying to decide between two different plant systems. Plant 1 $360,000 has a 4-year life and requires $105,000 in pretax annual operating costs. Plant 2 costs $480,000, has a 6-year life and requires $65,000 in pre-tax annual operating costs. Both plants are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever plant is chosen, it will not be replaced when it wears out. If the tax rate is 34% and the discount rate is 11%, which plant should the company choose?

Reference no: EM13302464

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