Oklahoma Electric Company - Equivalent Annual Cost
Not what you're looking for?
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
Purchase this Solution
Solution Summary
The solution evaluates two options by comparing Equivalent Annual Cost.
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 ...
Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.