During fiscal year 2019 HHL decides

to outsource its information technology services to another company.

By doing this outsourcing, HHL will be able to get rid of certain services and staff that cost the hospital $175,000 annually.

There is an upfront cost to undertaking this venture, because the company must setup servers, backup systems, and e-mail accounts for HHL. Then, there are annual contract payments that HHL must make with the IT company. The Board of Directors has agreed to a 4-year contract. Management is entertaining two separate bids

from two companies. The first requires a $250,000 payment for the initial conversion, and $100,000 per year afterwards. The other bid requires a $350,000 payment upfront, but only $75,000 annually. HHL has a 6% cost of capital. Which option should HHL choose?