You Have Been Asked to Evaluate 2 Pollution Control Devices

question 17

Multiple Choice

You have been asked to evaluate 2 pollution control devices. The wet scrub costs $100 to set up and $50 per year to operate. It must be completely replaced every 3 years, and it has no salvage value. The dry scrub device costs $200 to set up and $30 per year to operate. It lasts for 5 years and has no salvage value. Assuming that pollution control equipment is replaced as it wears out, which device do you recommend if the cost of capital is 10%?

• A) Dry scrub, the EAC is $11.00.
• B) Wet scrub, the EAC is $90.21.
• C) Dry scrub, the EAC is $82.76.
• D) Wet scrub, the EAC is $9.79.
• E) Dry scrub, the EAC is $124.34.

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Definitions:

Other Comprehensive Income

Portions of total comprehensive income of a company not realized in net income, including items like foreign currency translation adjustments or unrealized gains on securities.

International Financial Reporting Standards

A set of accounting standards developed by the International Accounting Standards Board (IASB) that aims to standardize accounting practices globally.

Accounting Standards for Private Enterprises

Specific accounting principles and guidelines meant for the financial reporting of privately-held companies, differing from those for publicly traded companies.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee’s profits or losses.