Apex Corporation requires a chemical finishing process for a product under contract for a periodof six years. Three options are available. Neitheroption 1 nor option 2 can be repeated after its process life. However, option 3 will always be availablefrom H&H Chemical Corporation at the same costduring the period that the contract is operative. Hereare the options:• Option 1: Process device A, which costs$100,000, has annual operating and labor costs of$60,000 and a useful service life of four years withan 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 a useful service life of six years withan estimated salvage value of $30,000.• Option 3: Subcontract out the process at a costof $100,000 per year.According to the present-worth criterion, whichoption 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 period that the contract is operative. Here
are the options:
• Option 1: Process device A, which costs
$100,000, has annual operating and labor costs of
$60,000 and 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 a useful service life of six years with
an estimated salvage value of $30,000.
• Option 3: Subcontract out the process 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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