Explore BrainMass
Share

Oklahoma Electric Company - Equivalent Annual Cost

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

The Oklahoma Electric Company (OEC) is currently evaluating two different options to control the emissions from their coal-burning electric generation facility in Dewar. A filtration system will cost $12 million to install and $700,000 per year to operate. The filtration system, which will have a salvage value of zero at the end of its useful life, must be replaced every five years. The alternative is to install a precipitation system that scrubs the air coming from the facility. The precipitation system, which will cost $20 million to install and $200,000 per year to operate, has a useful life of eight years. OEC has a corporate tax rate of 40 percent and an opportunity cost of capital of 10 percent. Assuming that each pollution control system must be depreciated to a zero salvage value over its useful life using straight-line depreciation, determine whether
OEC should purchase the filtration system or the precipitation system

© BrainMass Inc. brainmass.com October 24, 2018, 10:44 pm ad1c9bdddf
https://brainmass.com/business/annuity/oklahoma-electric-company-equivalent-annual-cost-168852

Solution Preview

The Oklahoma Electric Company (OEC) is currently evaluating two different options to control the emissions from their coal-burning electric generation facility in Dewar. A filtration system will cost $12 million to install and $700,000 per year to operate. The filtration system, which will have a salvage value of zero at the end of its useful life, must be replaced every five years. The alternative is to install a precipitation system that scrubs the air coming from the facility. The precipitation system, which will cost $20 million to install and $200,000 per year to operate, has a useful life of eight years. OEC has a corporate tax rate of 40 percent and an opportunity cost of capital of 10 percent. Assuming that each pollution control system must be depreciated to a zero salvage value over its useful life using straight-line depreciation, determine whether OEC should purchase the ...

Solution Summary

The solution evaluates two options by comparing Equivalent Annual Cost.

$2.19
See Also This Related BrainMass Solution

Comparing annual reports

Comparing Home Depot & Lowe's annual report for year 2008; explanations also needed.
Need someone to review completed answers and assist with highlighted areas; this includes a couple of explanations. Please place additional answers in red. Also I have showed the work for problems; PLEASE SHOW ANY WORK THAT YOU COMPLETE, so I am able to understand.

I have attached the annual reports for Home Depot and Lowe's. The attached Lowe's annual report is in print screen format (the file was too big to upload) - the information that is on the print screen is consecutive.

I would choose Lowe's to invest in - is this what you would do also?

View Full Posting Details