Mid-Valley Industrial Extension Service, a state-sponsoredagency, provides water quality sampling services toall business and industrial firms in a 10-county region.Last month, the service purchased all necessary lab equipmentfor full in-house testing and analysis. Now, an outsourcingcompany has offered to take over this function ona per-sample basis. Data and quotes for the two optionshave been collected. The MARR for government projectsis 5% per year and a study period of 8 years is chosen.In-house: Equipment and supplies initially cost$125,000 for a life of 8 years, an AOCof $15,000, and annual salaries of$175,000. Sample costs average $25.There is no significant salvage valuefor the equipment and supplies currentlyowned.Outsourced: Cost averages $100 per sample for thefirst 5 years, increasing to $125 persample for years 6 through 8. Determine the breakeven number of tests between the two options.

Question

Mid-Valley Industrial Extension Service, a state-sponsored
agency, provides water quality sampling services to
all business and industrial firms in a 10-county region.
Last month, the service purchased all necessary lab equipment
for full in-house testing and analysis. Now, an outsourcing
company has offered to take over this function on
a per-sample basis. Data and quotes for the two options
have been collected. The MARR for government projects
is 5% per year and a study period of 8 years is chosen.
In-house: Equipment and supplies initially cost
$125,000 for a life of 8 years, an AOC
of $15,000, and annual salaries of
$175,000. Sample costs average $25.
There is no significant salvage value
for the equipment and supplies currently
owned.
Outsourced: Cost averages $100 per sample for the
first 5 years, increasing to $125 per
sample for years 6 through 8. Determine the breakeven number of tests between
the two options.

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