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which option is best? NEV, Inc. wants to evaluate two new methods that willimprove their productivity. Both alternatives have 26 years of service life and
which option is best?
NEV, Inc. wants to evaluate two new methods that willimprove their productivity. Both alternatives have 26 years of service life and NEV uses MARR of 13%. Alternative A has a first cost of $3,315,000. Maintenance cost will start end of year three due to an incentive in the contract with the manufacturer that will give free maintenance in the first 2 years. The maintenance cost at end of year three is $42,000 and will increase by $2,700 starting end of year four and continue to increase with the same value thereafter till the end of its service life. A three-times major repair will occur. The first one is at end of year 8 that will cost $56,000, the second one is at end year 13 and will cost $32,000 and the third and last major repair is $27,500 at end of year 20 . The expected revenues from this alternative are $572,000 per year starting end of year 1 and this option will have a salvage value of $840,000 at the end of its service life. Alternative B has a first cost of $2,570,000 and maintenance cost that start end of year one of $32,400 and increase by $2,225 starting end of year two and continue to increase with the same value thereafter till the end of its service life. A one-time major repair will occur at end of year 13 that will cost $83,000. The expected revenues from this alternative are $476,000 per year starting end of year 1 and this option will have a salvage value of $667,000 at the end of its service lifeStep by Step Solution
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