Question 2 - Consider the following: A company that manufactures magnetic membrane switches is investigating two production options. They have to select one of them. The first option is an in-house production plan and the second is a contracted plan. Cash flow estimates are below. The interest rate is 2.412% per quarter. Use the LCM method as your analysis. (this question is an exception in that it will be scored with partial credit)

	In-House	Contract
First Cost	$30,000	$1,000
Annual Income (per year)	$20,000	$3,100
Salvage value	$2,000	none
Life (years)	3	5

Question Selected Match

What is the effective annual interest rate? H. 9.65% Incorrect

Using LCM analysis, what is the present worth of the in-house option? F. $89,977 Incorrect

Using LCM analysis, the in-house option should be selected. E.$103,400 Incorrect