Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $940,000 now and $435,000 two years from now, with annual M&O costs of $70,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $230,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company's MARR of 14% per year. The present worth of option 1 is $-1621119.5 and that of option 2 is $-1384324 Option 2 is more attractive.

Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $940,000 now and $435,000 two years from now, with annual M&O costs of $70,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $230,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company's MARR of 14% per year. The present worth of option 1 is $-1621119.5 and that of option 2 is $-1384324 Option 2 is more attractive.

Name: Leonard, a company that manufactures explosion-proof motors, is consi
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Description: Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international exportcapacity. Option 1 requires equipment purchases of $940,000 now and $435,000 two years from now, with annual M&O costs

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 17P: The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will...

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