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Tulsa Company is considering investing in new bottling equipment and has two options: Option A...

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Accounting

Tulsa Company is considering investing in new bottling equipment and has two options: Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years; Option B has higher maintenance costs but also has a higher salvage value at the end of its useful life. Tulsas cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsas controller:
Option A Option B
Initial investment $ 320,000 $ 454,000
Annual cash inflows 150,000160,000
Annual cash outflows 70,00075,000
Costs to rebuild 120,0000
Salvage value 024,000
Estimated useful life 8 years 8 years
Required:
Calculate NPV.(Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.)
Determine which option Tulsa should select?

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