Leonard Motors is trying to increase its international export business. It is considering several alternatives. The three options along with their associated cash flows are listed below. Options: 01: Equipment costs $900K now and another $560K in 2 years. Annual M&O costs $79,000. Life of project is 10 years. 02: Subcontract production for an annual payment of $280K for years 0 (now) through 10. 03: Pay $400K now. Annual expenses exceed annual revenue starting at EOY 1 by $420K and increase 5% per year through EOY 5. Annual revenues exceed annual expenses by $50K from EOY 6 to 10. There is a salvage value of $100K at EOY 10. Please calculate your answer to the nearest whole dollar. Format 0000 No commas The MARR for Leonard Motors is 15% APR compounded quarterly. a. Which option is most financially beneficial to Leonard Motors? O A. Option 2 O B. Option 3 O C. Option 1 b. Based on part a, what is the PW of the most financially beneficial to Leonard Motors? $
Leonard Motors is trying to increase its international export business. It is considering several alternatives. The three options along with their associated cash flows are listed below. Options: 01: Equipment costs $900K now and another $560K in 2 years. Annual M&O costs $79,000. Life of project is 10 years. 02: Subcontract production for an annual payment of $280K for years 0 (now) through 10. 03: Pay $400K now. Annual expenses exceed annual revenue starting at EOY 1 by $420K and increase 5% per year through EOY 5. Annual revenues exceed annual expenses by $50K from EOY 6 to 10. There is a salvage value of $100K at EOY 10. Please calculate your answer to the nearest whole dollar. Format 0000 No commas The MARR for Leonard Motors is 15% APR compounded quarterly. a. Which option is most financially beneficial to Leonard Motors? O A. Option 2 O B. Option 3 O C. Option 1 b. Based on part a, what is the PW of the most financially beneficial to Leonard Motors? $
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Chapter19: Capital Investment
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Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...
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![Leonard Motors is trying to increase its international export business. It is considering several alternatives. The three options along with their associated cash flows are listed below.
Options:
01: Equipment costs $900K now and another $560K in 2 years. Annual M&O costs $79,000. Life of project is 10 years.
02: Subcontract production for an annual payment of $280K for years 0 (now) through 10.
03: Pay $400K now. Annual expenses exceed annual revenue starting at EOY 1 by $420K and increase 5% per year through EOY 5. Annual revenues exceed annual expenses by $50K from EOY 6 to 10. There is a salvage value of $100K at EOY 10.
Please calculate your answer to the nearest whole dollar. Format 0000 No commas
The MARR for Leonard Motors is 15% APR compounded quarterly.
a. Which option is most financially beneficial to Leonard Motors?
O A. Option 2
O B. Option 3
OC. Option 1
b. Based on part a, what is the PW of the most financially beneficial to Leonard Motors? $](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F627efc1e-6dd5-490e-992b-10ac9c65fb29%2F96f93361-41e8-44ac-b901-a948ce145f70%2Fftbgxl9_processed.png&w=3840&q=75)
Transcribed Image Text:Leonard Motors is trying to increase its international export business. It is considering several alternatives. The three options along with their associated cash flows are listed below.
Options:
01: Equipment costs $900K now and another $560K in 2 years. Annual M&O costs $79,000. Life of project is 10 years.
02: Subcontract production for an annual payment of $280K for years 0 (now) through 10.
03: Pay $400K now. Annual expenses exceed annual revenue starting at EOY 1 by $420K and increase 5% per year through EOY 5. Annual revenues exceed annual expenses by $50K from EOY 6 to 10. There is a salvage value of $100K at EOY 10.
Please calculate your answer to the nearest whole dollar. Format 0000 No commas
The MARR for Leonard Motors is 15% APR compounded quarterly.
a. Which option is most financially beneficial to Leonard Motors?
O A. Option 2
O B. Option 3
OC. Option 1
b. Based on part a, what is the PW of the most financially beneficial to Leonard Motors? $
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