A company that manufactures clear PVC pipes is investigating the production options of batch and continuous processing. Estimated cash flows are:

The chief operating officer (COO) has asked you to determine if the batch option, using an interest rate of 15% per year, would ever have an annual worth lower than that of the continuous flow system. The continuous flow process was previously determined to have its lowest cost over a 5-year life cycle, but the batch process can be used from 3 to 10 years. If selecting the batch process is sensitive to its useful life, what is the minimum life that makes it more attractive?

The batch system will be less expensive than the continuous flow if it lasts over _____ years.

Batch -72,000 -49,000 Continuous -140,000 -31,000 Process First cost ($) Annual cost $ per year) Salvage value, any year, ($) Life (years) 9,000 25,000 3-10 5