Ask Question
19 October, 16:03

Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will have a first cost of $160,000, an operating cost of $7000 per quarter, and a salvage value of $40,000 after its 2-year life. Process L will have a first cost of $210,000, an operating cost of $5000 per quarter, and a $26,000 salvage value after its 4-year life. Which process should be selected on the basis of a present worth analysis at an interest rate of 8% per year, compounded quarterly?

+4
Answers (1)
  1. 19 October, 16:32
    0
    Process L will be selected because their NPV is better than Process K

    Explanation:

    Process K will have a year 0 investment of - $160,000.00

    Then during 8 quarter a cost of 7,000 present value of - $51,278.37

    Lastly, a salvage value of 40,000 at the end PV of $34,293.55

    Net present value of Process K - $176.984,82

    at 8% per year with quarterly compound

    Process L will have a year 0 investment of - $210,000.00

    Then during 16 quarter a cost of 5,000 PV of - $36,627.41

    26000 salvage value at the end of the period: pv $19110.76

    Net present value of Process L - $154.261,82

    at 8% per year with quarterly compound
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Two processes can be used for producing a polymer that reduces friction loss in engines. Process K will have a first cost of $160,000, an ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers