Question

"Motors R Us requires a specific painting process for one its automobiles that will be manufactured for exactly eight years. Three options are available. Neither option 2 nor option 3 can be repeated after its process life. However option 1 will always be available at the same cost during the period of eight years. Here are the options:
-Option 1 is to subcontract out the process at a cost of $115,000 per year.
-Option 2 costs $181,000 immediately and has annual operating and labor costs of $77,000 and a useful service life of eight years with a salvage value of $58,000.
-Option 3 costs $130,000 immediately and has annual operating and labor costs of $75,000 and a useful service life of five years with a salvage value of $16,000. For years six through eight, the firm will follow option 1.
Enter the ""net present cost"" for the option that you would recommend if i = 12.8%. Enter your answer as positive number."

Answer 1

As the net present cost is lowest for Option 2, the same is recommended.