You are a financial consultant that helps companies evaluate capital budgeting decisions.$$ One of your clients, ModCo, is a company that modifies trucks for specialized applications.$$ ModCo can bid on a contract to customize and deliver $24$ trucks over $5$ years to a customer.$$ However, they are struggling to make various capital budgeting decisions, and have retained you to help them.$$ ModCo$$s required rate of return for such projects is $20\%$ and its marginal tax rate is $21\%.$

In order to fulfil the contract, ModCo will have to purchase certain equipment.$$ It is considering two different options.$$

Option $1$ has a purchase price of $$125,000$ and will cost $$10,000$ per year to operate. It needs to be replaced every $6$ years.$$ At the end of its useful life, it has a salvage value of $$5,000.$

Option $2$ has a purchase price of $$140,000$ and will cost $$8,500$ per year to operate. It needs to be replaced every $8$ years.$$ At the end of its useful life, it has a salvage value of $$7,000.$

It costs $$5,000$ to install either option.

The equipment ModCo plans to purchase qualifies for $5-$year MACRS depreciation.

Question:$$Which option should ModCo purchase? Justify your decision based on comparison of the equivalent annual cost for each option.$$ Assume that ModCo will continue to replace which ever option you recommend on an ongoing basis.