A large profitable corporation is considering two mutually exclusive capital inv

Question

A large profitable corporation is considering two mutually exclusive capital investments:

Alt A.
Initial Cost: 11,000
Uniform Annual Benefit: 3,000
End of depreciable life salvage value: 2,000
Depreciation method: SL
End of useful life salvage value obtained: 2,000
Depreciable life, in years: 3
Useful life, years: 5


Alt B.
Initial Cost: 33,000
Uniform Annual Benefit: 9,000
End of depreciable life salvage value: 3,000
Depreciation method: SOYD
End of useful life salvage value obtained: 5,000
Depreciable life, in years: 4
Useful life, years: 5

If the firms after-tax minimum attractive rate of return is 12%, and its combined incremental income tax rate is 34%, which project should be selected?

PLEASE show work, else I won't understand.

Explanation / Answer

ALT A

Initial cost 11000 End of useful life salvage value 2000 Depreciable amount 9000 Useful life 5 yrs. Depreciation p.a.9000/5= 1800

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