A firm is having a large piece of equipment overhauled. It expects that the machine will be needed for the next 12 years. The firm has an 8% minimum attractive rate of return. The contractor has suggested three alternatives:

A. A complete overhaul for $6000 that should permit 12 years of operation.

B. A major overhaul for $4500 that can be expected to provide 8 years of service. At the end of 8 years, a minor overhaul would be needed.

C. A minor overhaul now. At the end of 4 and 8 years, additional minor overhauls would be needed. If minor overhauls cost $2500, which alternative should the firm select?

If minor overhauls, which now cost $2500, increase in cost at +5% per year, but other costs remain unchanged, which alternative should the firm select?