Griffin Dewatering is considering three alternatives. The first is the purchase of a permanent steel building to house their existing equipment for the overhaul of dewatering systems (engines, pumps, and well points). The building can be put into service for $240,000 in early January of this year. The planning horizon for this is 10 years, at which time the building can be sold for $120,000 in late December. Maintenance and upkeep of the equipment, plus labor and materials for overhaul, costs $130,000 per year. A second alternative is to lease a building for $15,000 per year at the beginning of each year in which case all operating costs are identical except for an additional $4000 per year cost due to the inconvenient location of the lease property. Third, they could simply contract out the overhaul work for $170,000 per end-of-year, with an immediate credit through salvage of their present equipment for $45,000. Marginal taxes are 40% and the after-tax MARR is 12%.

a.Determine the annual worth associated with buying the building. Be sure to give the appropriate MACRS-GDS property class.

b.Determine the annual worth of leasing.

c.Determine the annual worth of contracting out the work.

d.Determine the annual contract price that makes contracting and leasing economically equivalent.