An aerospace subcontractor of NASA is considering purchasing vibration test-bed equipment for a testing facility in Johnson Space center in Huston, TX. Two options are available, that is, test-bed A and text-bed B. The lives of option A and option B are four years and six years, respectively. But NASA does not expect to need the service of either equipment for more than five years. The estimated salvage value for test-bed A is $1600. For test-bed B, after four years of use, the salvage value will remain at $2,500. The overhaul cost of equipment A is $1000 for every three years, whereas, the overhaul cost of equipment B is $1800 for every four years.

The company also has the option of leasing the equipment for $8,500 per year, fully maintained by the leasing company. Consider the following expected disbursements and receipts.

Item

Test-bed A

Test-bed B

Initial cost

$16,500

$18,500

Operation and Maintenance cost

$1800

$1520

Change dampers every other year

$1100

None

Given the following decision alternatives (with required service period of five years), determine which decision alternative appears to be the best at LaTeX: i=12\% i = 12 % .

Alternative A1: Buy equipment A and use it for four years. Then lease the machine for one year.

Alternative A2: Buy equipment B and use it for five years

Alternative A3: Lease an equipment for five years.