Allen Corporation has to decide between following two air conditioning units for the office building. Both units are adequate in their performance.
| |
Carrier
|
Worthington
|
|
Initial cost
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$120,000
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$80,000
|
|
Annual maintenance cost
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$10,000
|
$12,000
|
|
Annual Electricity cost
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$20,000
|
$25,000
|
|
Expected life
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6 years
|
5 years
|
The company will employ straight line depreciation, with no resale value. The tax rate of Allen is 28%, and proper discount rate is 10%. Which one of these units will prove to be less costly in long run?