4) Suppose that X Company wants to install a new inspection system. There are two options given by two different companies:
Option 1:
Purchasing Cost $20,000, Operating Cost $6,000, Salvage Value=$4,000, Lifetime=3 years
Option 2:
Purchasing Cost $32,000, Operating Cost $5,000, Salvage Value $5,000, Lifetime=5 years
Given that the chosen inspection system will be used indefinitely (i.e. required service period is infinity), and assuming that price, costs will not change, which model should be chosen at MARR=12% using present worth analysis?