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 $134,000 per year.
-Option 2 costs $194,000 immediately and has annual operating and labor costs of $81,000 and a useful service life of eight years with a salvage value of $43,000.
-Option 3 costs $147,000 immediately and has annual operating and labor costs of $71,000 and a useful service life of five years with a salvage value of $21,000. 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 = 16%. Enter your answer as positive number."

Answer 1

OPTION-1
YEAR	PAYMENT	PVF @16%	PRESENT VALUE
1	134000	0.862	115517.2
2	134000	0.743	99583.83
3	134000	0.641	85848.13
4	134000	0.552	74007.01
5	134000	0.476	63799.14
6	134000	0.410	54999.26
7	134000	0.354	47413.16
8	134000	0.305	40873.41
Total present value of cost			582041.2
OPTION-2
YEAR	PAYMENT	PVF @16%	PRESENT VALUE
0	194000	1.000	194000
1	81000	0.862	69827.59
2	81000	0.743	60196.2
3	81000	0.641	51893.27
4	81000	0.552	44735.58
5	81000	0.476	38565.15
6	81000	0.410	33245.82
7	81000	0.354	28660.19
8	38000	0.305	11590.97
Total present value of cost			532715
OPTION-3
YEAR	PAYMENT	PVF @16%	PRESENT VALUE
0	147000	1.000	147000
1	71000	0.862	61206.9
2	71000	0.743	52764.57
3	71000	0.641	45486.69
4	71000	0.552	39212.67
5	50000	0.476	23805.65
6	134000	0.410	54999.26
7	134000	0.354	47413.16
8	134000	0.305	40873.41
Total present value of cost			512762