1. The State Legislature has mandated a statewide recycling program to include all types of plastic, paper, metal, and glass refuse. Two options for the materials separation equipment are outlined below. The interest rate for state-mandated projects is 7% per year.

Contractor option (C): $9 million now and $40,000 per year will provide separation services at a maximum of 12 sites. No contract period is stated; thus the contract and services are offered for as long as the State needs them.

Purchase option (P): Purchase equipment at each site for $290,000 per site and expend an estimated $12,000 in annual operating costs (AOC). Expected life of the equipment is 6 years with no salvage value.

(a) Perform a capitalized cost analysis for a total of 10 recycling sites to determine the better option.

(b) Determine the maximum number of sites at which the equipment can be purchased and still have a capitalized cost less than that of the contractor option.

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