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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

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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 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 life

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