Question

Leonard, a company that manufactures explosion-proof motors, is considering two alternatives for expanding its international export capacity. Option 1 requires equipment purchases of $855,000 now and $555,000 two years from now, with annual M&O costs of $74,000 in years 1 through 10. Option 2 involves subcontracting some of the production at costs of $250,000 per year beginning now through the end of year 10. Neither option will have a significant salvage value. Use a present worth analysis to determine which option is more attractive at the company’s MARR of 19% per year.

The present worth of option 1 is $____ and that of option 2 is $  .______

Answer 1