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In: Economics

Please show work and use the actual equations, not excel ones. An RV manufacturer estimates that...

Please show work and use the actual equations, not excel ones.

An RV manufacturer estimates that annual profits will increase if a mobile model is built and taken to trade shows to market their product line. A finance and engineering team has looked at the issue and has developed to options:

1.) A large model can be developed at a cost of $75,000, and it should increase annual profits by $25,000 per year.

2.) A small model can be developed for $40,000, but it will only increase annual profits by $14,500 per year.

The salvage value for the large model is $6000 more than the small model after their common useful life of 6 years, and it costs $1,500 more a year to transport to the trade shows. The manufacturer uses an interest rate of %18. Use an annual worth comparison to make a recommendation on which, if either, option should be chosen.

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