Identify the preferred alternative and why

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Reference no: EM13186109

Your company is considering purchase of a new DNA analyzer for $250,000. This should open up a new business revenue stream for product testing which will produce $80,000 per year in revenue. Annual operating costs are estimated at $10,000 per year. Due to changing technology, you estimate the machine will be sold after seven years for $50,000 and you will buy new technology to meet the needs at that time. The MARR in your company for projects like this is 10%.

As an alternative, your company can lease this machine for $60,000 per year and this includes maintenance costs covered by the vendor. There is no salvage value in this case.

You have been asked to analyze this project for your boss and prepare a memo for submission to the executive board for capital projects. Your goal is to:

1) Determine the present worth for these alternatives over the projected seven year life.

2) Identify the preferred alternative and why

3) Examine changes in annual revenue and identify how much this factor can change (plus or minus) to result in your recommendation being reversed (if ever).

Reference no: EM13186109

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