The Oakley-Brown, a Frozen Food Processor, Requires an Additional Refrigeration

Multiple Choice

The Oakley-Brown, a frozen food processor, requires an additional refrigeration unit. The company is considering a premium model at a cost of $52,000. Expected life for the unit is five years with a residual value of $18,500. The incremental income before depreciation is expected to be $14,500 a year. The company's cost of capital is 14%. Using 14% and 25% as trial values, what increase in the cost of capital will eliminate the unit from consideration?

A) 0.6%
B) 11%
C) 2.0%
D) 5.1%
E) 19.7%