2. Many valves are required in a certain pipelinethat carries a corrosive chemical. In the past cast

2.   Many valves are required in a certain pipelinethat carries a corrosive chemical. In the past cast iron valveshave always been used and have required replacement every 2 years.Now valves of two corrosion-resistant alloys, A and B areavailable. Estimates of installed first costs, lives and salvagevalues for these three types of valve are as follows:                                    Cast Iron         AlloyA           AlloyB Firstcost                    $2,000           $ 4,000           $6,000 Life                            2years           5years           10 years Salvagevalue            zero                $1,000            zero The only differences in annual disbursements for the three typesof valve are in disbursements for income taxes. Income tax for eachcase will be 2.5% of the first cost. a) At what value of i will the after-tax cost of 10 years ofservice with the cast iron valve have exactly the same presentworth as the after-tax cost of 10 years of service with valves ofAlloy A? Assume that replacement costs will be the same as originalcosts. b) At what value of i will the after-tax cost of 10 years ofservice with the cast iron valve have exactly the same presentworth as the after-tax cost of 10 years of service with valves ofAlloy B? Assume that replacement costs will be the same as originalcosts. c) At what value of i will the after-tax of 10 years of servicewith the valves of Alloy A have exactly the same present worth asthe after-tax cost of 10 years of service with valves of Alloy B?Assume that replacement costs will be the same as originalcosts. d) If the stipulated after-tax i* is 8%, which type of valve doyou recommend? Would your answer be changed if the stipulatedafter-tax i* should be 12 %? Explain your reasoning. . . .

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