Let the investment described in question 6 be option A and suppose the company could instead purchase some more expensive equipment with an initial cost of $40,000 (call this option B) that would lower the annual operating costs to $5,000. Assume annual savings from the investment remains the same and the salvage value would be 10% of the initial cost at the end of a 10 year life in either case.
Based simply on an economic comparison which option should the company select? Use whichever method you prefer to make your choice.
What other criteria might play a role in this decision?