In a chlorine-fluxing installation in a large aluminum company, engineers are considering the replacement of existing plastic pipe fittings with more expensive but longer lived, copper fittings. the following table gives a comparison of the capital investments, lives, salvage values, and so on of the two mutually exclusive alternatives under consideration:
|
plastic |
copper |
| capital investment |
$5000 |
$10000 |
| useful life |
5 years |
10 years |
| salvage value for depreciation purposes |
(after 5 years) $1000 |
(after 10 years) $5000 |
| annual expenses |
$300 |
$100 |
| market value at end of useful life |
$0 |
$0 |
Depreciation amounts are calculated with the SL method. Assume an income tax rate of 40% and an after-taxes MARR of 12% per year. which pipe fitting would you select and why? carefully list all assumptions that you make in performing the analysis.