Please see the attached file.
The LJB Company must replace a freezer and is trying to decide between the following two alternatives:
Freezer A Freezer B
Investment Required $29,000 $25,000
Annual electric bill 3,000 4,000
Salvage value 6,000 5,000
Project life 11 years 11 years
The LJB Company's cost of capital is 8%.
Which investment provides LJB with the lowest total cost?
Total cost of the freezer = Initial investment + PV of electric costs - PV of salvage value as it is inflow
The solution explains how to determine the investment with lowest cost