Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export...

Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $600,000 now and $500,000 two years from now, with annual M&O costs of $90,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $240,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company’s MARR of 16% per year. (Note: Check out the spreadsheet exercises for new options that Leonard has been offered recently.) (using a spreadsheet)

Expert Solution

As has been asked in the question have determined the NPW of the two alternatives using Excel refer the attached picture

Have also calculated the incremental PW of the two options refer the attached picture

Select option 2.

Rahul Sunny answered 7 months ago

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