Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $900,000 now and $560,000 two years from now, with annual M&O costs of $79,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $280,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the companys MARR of 20% per year. (Note: Check out the spreadsheet exercises for new options that Leonard has been offered recently.)

1-What is the present worth of Option 1?

2-What is the present worth of Option 2?

3-Would you recommend 1 or 2?