2. Your company is considering purchasing an $80,000 piece of equipment to reduce labor costs and would like to evaluate two options over a four-year period. Assume an annual interest rate of 9% compounded annually, and bring all the costs back to the present (determine the present cost). Draw cash flow diagrams for both options, and identify the best option.

Option 1: Do not purchase the equipment and continue paying current labor costs of $30,000 per year. $97,191.60

Option 2: Purchase the $80,000 piece of equipment and reduce labor costs to $15,000 per year. Maintenance costs for the new piece of equipment are $1,000 for year 1, $1,500 for year 2, $2,500 for year 3, and $5,000 for year 4 (paid out at the end of the year) The salvage value of the equipment is estimated at $35,000 after four years