You started your engineering firm after graduating from Memorial Univesity. The City of Paradise has approached you to provide maintenance to one of its new asphalt facilities while the entire city's re- pavement occurs over the next six years. You will need to decide what investment you should make to fulfill this contract. You have three options. Alternative A and Alternative B will require initial investments in new equipment but cannot repeat after the equipment's useful life. Alternative C will always be available from a colleague's firm at the same cost when the contract is operative.

Alternative A. Buy equipment A, which costs $112,000, has annual operating and labour costs of $61,700 and a useful service life of four years with an estimated salvage value of $10,200.

Alternative B. Buy equipment B, which costs $153,000, has annual operating and labour costs of $56,700 and a useful service life of six years with an estimated salvage value of $33,400.

Alternative C. Subcontract the process at $107,500 per year from your colleague.

According to the present-worth criterion, which option would you prefer at i 12.3% ?

What option would you prefer option if you use the annual worth criterion?