In a chlorine-fluxing installation in a large aluminum company, engineers are considering the replacement of existing plastic pipe fittings with more expensive, but longer lived, copper fittings. The following table gives a comparison of the capital investments, lives, salvage values, and so on of the two mutually exclusive alternatives under consideration:
Plastic | Copper | |
Capital investment | $5,000 | $10,000 |
Useful (class) life | 5 years | 10 years |
Salvage value for depreciation purposes | $1,000(=SV_{5} ) | $5,000(=SV_{10} ) |
Annual expenses | $300 | $100 |
Market value at end of useful life | $0 | $0 |
Depreciation amounts are calculated with the SL method. Assume an income tax rate of 40 \% and a MARR after-taxes of 12 \% per year. Which pipe fitting would you select and why? Carefully list all assumptions that you make in performing the analysis. (7.9,7.10)