Pinion Potato Chip Inc. must purchase new potato peeling equipment for its plant in Union City, Tennessee. The plant engineer has determined the…

Pinion Potato Chip Inc. must purchase new potato peeling equipment for its plant in Union City, Tennessee. The plant engineer has determined the following three setups are possibilities:

                                                     Naked Peel            Skinner                Peel-o-Matic

First Cost:                                     $55,000                 $58,000             $70,000

Annual Costs:                                $6,000                  $5000                  $5,000

Declared Salvage Value                 12 % of FC            $5,500                 $10,000

Useful Life                                      6 years                 6 years                6 years

Actual Salvage Value                     $6,500                   $5,500                 $12,000

All assets are depreciated using straight line method. Determine which setup should be chosen if the MARR for the firm is 10% and the marginal tax rate is 30%. What is the NPW of each and what would you choose?

a) Naked Peel: -25,808; Skinner: -30,671; POM: -53,449; POM

B)Naked Peel: -45,371; Skinner: -44,116; POM: -60,266; Skinner

C) Naked Peel: -56,614; Skinner: -56,311; POM: -63,175; Skinner

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