Syntec Utilities needs to purchase a new piece of equipment in order to meet EPA requirements for carbon emissions. The company has two options for purchasing the equipment:
Also assume Option B will get a tax rebate of $20,000 in year 4 and $15,000 in year 8. Syntec Utilities has a beta of .8, the risk free-rate is 3% and the market risk premium is 8%.
A. Calculate the NPV of each option ,Which strategic decision should Syntec Utilities take? Why?
|
Initial
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Main. Costs
|
Expected
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Salvage
|
|
Option
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Investment
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(per year)
|
Life (yrs)
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Value
|
|
A
|
18,000
|
2,000
|
6
|
4,100
|
|
B
|
28,000
|
1,900
|
13
|
1,000
|