For a new product, the marketing department predicts that sales are expected to be 100,000 units in year 1, increasing by 15,000 each subsequent year to 190,000 in year 6. There are 2 different manufacturing process available:

Option A: A manufacturing machine with up-front equipment purchase cost of $150,000 and the manufacturing cost per unit is $0.70. At the end of 6 years, the equipment salvage recovery is $20,000

Option B: A machine with up-front purchase cost of $200,000 with a manufacturing cost of $0.50 per unit, and equipment salvage recovery at the end of 6 years of $40,000.

Assume an interest rate of 5% and a production period of 6 years.

1. Which option should you choose based on a present equivalent evaluation with no considerations for depreciation?

2. What is the present equivalent cost of Option A?

3. What is the present equivalent cost of Option B?