Use the Following Comparison of Alternative Equipment Investment Decisions for STU

Multiple Choice

Use the following comparison of alternative equipment investment decisions for STU $$\begin{array} { | l | r r | r r | } \hline & { \text { Alternative 1 } } && { \text { Alternative 2 } } \\\hline \text { Cost of equipment } & \$ & 100,000 & \$ & 150,000 \\\hline \text { Revenue } & \$ & 35,000 & \$ & 50,000 \\\hline \text { Depre ciation per annum (25\%) } & - \$ & 25,000 & - \$ & 37,500 \\\hline \text { Cash ope rating costs } & - \$ & 15,000 & - \$ & 16,000 \\\hline \text { Loss } & - \$ & 5,000 & - \$ & 3,500 \\\hline\end{array}$$
-On a relevant cost basis, STU Ltd should:

A) Invest in Alternative 2 because it makes a higher return
B) Invest in Alternative 2 because the loss is lower
C) Invest in Alternative 1 because it makes a higher return
D) Not invest in either alternative because there is a loss