A restaurant owner is trying to decide between two different garbage disposals. A regular steel (RS) disposal has an initial cost of P3500, a life of 4 years, and a maintenance cost of P100 at the end of the second year. The alternative is corrosion-resistant disposal constructed primarily of stainless steel (SS). The initial cost of SS disposal is P6000, but it is expected to last for 6 years. Because the SS disposal has a slightly larger motor, it is expected to cost about P200 per year to operate. The salvage value of SS disposal is expected to be P500 at the end of 6 years. If the interest rate is 15% per year compounded quarterly. (a.) Draw the cash flow diagram. (b.) Which disposal should be selected?
A restaurant owner is trying to decide between two different garbage disposals. A regular steel (RS) disposal has an initial cost of P3500, a life of 4 years, and a maintenance cost of P100 at the end of the second year. The alternative is corrosion-resistant disposal constructed primarily of stainless steel (SS). The initial cost of SS disposal is P6000, but it is expected to last for 6 years. Because the SS disposal has a slightly larger motor, it is expected to cost about P200 per year to operate. The salvage value of SS disposal is expected to be P500 at the end of 6 years. If the interest rate is 15% per year compounded quarterly.
(a.) Draw the cash flow diagram.
(b.) Which disposal should be selected?
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