Lesco Chemical is considering two processes for making a cationic polymer. Process A has a first cost of $104,000 and an annual operating cost (AOC) of $64,000 per year. The first cost of process B is $165,000. If both processes will be adequate for 4 years and the rate of return on the increment between the alternatives is 25%, what is the amount of the AOC for process B

Following are the solution to this question:

Explanation:

Calculating the value of the first investment:

First amount = $ 104 000

Overhead annual expense = $ 64 000

So after 4 years the cumulative costs are estimated at a rate of 25 percent for the first 4 years, for the first year of AOC for three years, for the second year of AOC for two years etc., depending on the cost initially incurred. The net cost would then be:

Calculating the value of the second investment:

The AOC second investment will be x, then:

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