A professional kitchen is attempting to choose between gas and electricity for its main heat source. Once a choice is made, the kitchen intends to keep to that source indefinitely. Each gas oven has a net present value (

CS Executive · Financial and Strategic Management · PYQS · December 2023
A professional kitchen is attempting to choose between gas and electricity for its main heat source. Once a choice is made, the kitchen intends to keep to that source indefinitely. Each gas oven has a net present value (NPV) of ₹60,000 over its useful life of 5 years. Each electric oven has an NPV of ₹75,000 over its useful life of 7 years. The cost of capital is 8%. Which should the kitchen choose and why ?
(A) Gas because its average NPV per year is higher than electric
(B) Electric because its NPV is higher than gas
(C) Gas because its equivalent annual benefit is higher
(D) Electric because its equivalent annual benefit is higher

Answer & Explanation:

Correct Answer: Option (C)

Official answer key: (C).

Topics: Financial Management

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