Question

A large textile company is trying to decide among three alternatives of sludge dewatering processes. The costs associated with these alternatives are shown below. Alternative Y will need an upgrade of $9700 at the end of year 2. At the end of year 2, alternative Z would be replaced with another alternative Z having the same installed and operating costs. If the MARR is 14% per year, which alternative should be chosen?

Alternative	X	Y	Z
Installed costs	$68,500	$48,500	$33,500
Annual operating costs	$6000	$4000	$5000
Overhaul cost in year 2	-	$9700	-
Salvage value	$33,250	$28,250	$15,750
Useful life, years	8	4	2

Answer 1