Develop a new pressure test system for coolant hoses

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Reference no: EM13946559

A group of Mr. Lugwrench engineers spent 4 years and $50,000 to develop a new pressure test system for coolant hoses with the Old Faceful Corporation. Purchasing quoted the system out, and two systems are being considered - Old Faceful and Blowitoff.

Estimated costs and benefits are:

Old Faceful BlowitoffInitial Cost $30,000 $ 70,000Salvage Value 10% of init cost $ 0Useful Life 3 Years 7 YearsNet Savings per Year $15,000 $20,000

A. Using either an annual cash flow analysis or present worth analysis, if i = 4% and the need is projected to be ongoing, recommend which alternative, if any should be chosen. Show your calculations and list your assumptions and selection criterion.

B. Should the $50,000 development cost be considered in the decision? Explain.

Reference no: EM13946559

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