Two technologies are currently available for the manufacture of an important and expensive food and drug additive. Laboratory A is willing to release the exclusive right to manufacture the additive in this country for $50,000 payable immediately, and a $40,000 payment each year for the next 10 years. The production costs are $1.23 per unit of product. Laboratory B is also willing to release similar manufacturing rights, with the following schedule of payments: on the closing of the contract, $10,000 from Years 1 to 5, at the end of each year, a payment of $25,000 each from Years 6 to 10, also at the end of each year, a payment of $20,000 The production costs are $1.37 per unit of product. Neither lab is to receive any money after 10 years for this contract. It is anticipated there will be an annual production of 100,000 items for the next 10 years. On the basis of analyses and trials, the products of A and B are practically identical in quality. Assuming a MARR of 12%, which lab should be chosen?
Two technologies are currently available for the manufacture of an important and expensive food and drug additive. Laboratory A is willing to release the exclusive right to manufacture the additive in this country for $50,000 payable immediately, and a $40,000 payment each year for the next 10 years. The production costs are $1.23 per unit of product. Laboratory B is also willing to release similar manufacturing rights, with the following schedule of payments: on the closing of the contract, $10,000 from Years 1 to 5, at the end of each year, a payment of $25,000 each from Years 6 to 10, also at the end of each year, a payment of $20,000 The production costs are $1.37 per unit of product.
Neither lab is to receive any money after 10 years for this contract. It is anticipated there will be an annual production of 100,000 items for the next 10 years. On the basis of analyses and trials, the products of A and B are practically identical in quality. Assuming a MARR of 12%, which lab should be chosen?
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