Your design team has produced two alternative designs for city buses. Alternative A has an initial cost of $100,000, estimated annual operating costs of $10,000, will require a $50,000 overhaul after five years. Alternative B has an initial cost of $150,000, estimated annual operating costs of $5,000, will not require an overhaul after five years. Both alternatives will last ten years. If all other vehicle performance characteristics are the same, determine which bus is preferable using a discount rate of 10%. Assume that operating expenses occur over the course of the year, but are payable at the end of the year.

Would the decision reached in Exercise 2 change if the discount rate changed to:

a. 20%? (1 pt)

b. 15%? (1 pt)

c. How do the resulting cost figures influence your assessments of the given cost estimates? (2 pts)