Apex Corporation requires a chemical finishing process for a product undercontract for a period of six years. Three options are available. Neither Option 1 nor Option 2 can be repeated after its process life. However, Option 3 will always be available from H&H Chemical Corporation at the same cost during the contract period. The details of each option are as follows:Option 1: Process device A, which costs $100,000, has annual operating and labor costs of $60,000, and has a useful service life of four years with an estimated salvage value of $10,000.Option 2: Process device B, which costs $150,000, has annual operating andlabor costs of $50,000, and has a useful service life of six years with an estimated salvage value of $30,000.Option 3: Subcontract the process out at a cost of $100,000 per year.According to the present-worth criterion, which option would you recommend at i = 12%'?
Apex Corporation requires a chemical finishing process for a product under
contract for a period of six years. Three options are available. Neither Option 1 nor Option 2 can be repeated after its process life. However, Option 3 will always be available from H&H Chemical Corporation at the same cost during the contract period. The details of each option are as follows:
Option 1: Process device A, which costs $100,000, has annual operating and labor costs of $60,000, and has a useful service life of four years with an estimated salvage value of $10,000.
Option 2: Process device B, which costs $150,000, has annual operating and
labor costs of $50,000, and has a useful service life of six years with an estimated salvage value of $30,000.
Option 3: Subcontract the process out at a cost of $100,000 per year.
According to the present-worth criterion, which option would you recommend at i = 12%'?
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