Question: Processing of Nitinol, the special nickel-titanium alloy used exclusively to fabricate Iron Man's exoskeleton suits, requires highly specialized processing equipment. Stark Industries is preparing their manufacturing processes to meet demand for these suits over the next six years. They have identified three different options, with the details shown below. Option A will be replaceable at the same costs and salvage values for an indefinite period. However, since Option B is a highly specialized, made-to-order, piece of equipment it can only be purchased once-that is it cannot be replaced once its useful life has completed.
Therefore, Stark Industries must make other arrangements to meet customer demand over the remaining project life if this option is selected. However, the proprietary equipment used at the Avengers Fabrication Lab means that this option will always be available at the same cost during the six year project period. The financial advisors, who advise both Stark Industries and a conglomerate of villains, are encouraging Tony Stark to select Option C. Is this the best choice for Stark Industries or have the advisors provided a flawed recommendation? Use a present worth analysis approach to answer this question. Assume that i = 12% and that all cash flows happen at the end of the period.
