Option 2 $85,000 equipment (7 years of value with $13,000 salvage value) $3, 500 per year maintenance, increasing 3% in Year 6 and remaining at that rate in subsequent years $20,000 per year materials in Year 1 and decreasing to $15,000 per year in Year 2 and remaining years $60,000 per year labor, increasing 3% per year after R (required rate of return) 8% Calculations Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Revenue $80,000 $95,000 $130,000 $140.000 $150,000 $160,000 Maintenance $3,500 $3,500 $3,500 $3,500 $3,500 $3,605 $3,605 Materials $20,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15.000 Labor $60, 000 $61, 800 $63, 654 $65, 564 $67, 531 $69, 556 $71, 643 Total cash in $83, 500 $300 $12, 846 $45, 936 $53, 969 $61, 839 $82,752 or out PV factor 0.926 0.857 0.793 0.735 0.681 0.630 0.583 1=8%) PV= 1+.08) Present $77,321 $257 $10,186 $33,762 $36,752 $38,958 $48,244 value $10,186+$33,762+$35,752+$38,958+$48,244=$167902 in) - ($85,000+$77,321+$257=$162578 out) =$5,324