Pinion Potato Chip Inc. must purchase new potato peeling equipment for its plant in Union City, Tennessee. The plant engineer has determined the following three setups are possibilities:
Naked Peel Skinner Peel-o-Matic
First Cost: $55,000 $58,000 $70,000
Annual Costs: $6,000 $5000 $5,000
Declared Salvage Value 12 % of FC $5,500 $10,000
Useful Life 6 years 6 years 6 years
Actual Salvage Value $6,500 $5,500 $12,000
All assets are depreciated using straight line method. Determine which setup should be chosen if the MARR for the firm is 10% and the marginal tax rate is 30%. What is the NPW of each and what would you choose?
a) Naked Peel: -25,808; Skinner: -30,671; POM: -53,449; POM
B)Naked Peel: -45,371; Skinner: -44,116; POM: -60,266; Skinner
C) Naked Peel: -56,614; Skinner: -56,311; POM: -63,175; Skinner
