Ridgely Custom Meta l Products (RGMP) must purchase a new tube bender. It is considering two alternatives that have the following characteristics:
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Model T
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Model A
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First Cost
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$ 100,000
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$150,000
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Economic Life
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5 years
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5 years
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Yearly Savings
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$ 50,000
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$ 62,000
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Salvage Value
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$ 20,000
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$ 30,000
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Construct a break-even graph showing the present worth of each alternative as a function of interest rates between 6% and 20%.
Which is the preferred choice at 8% interest? Which is the preferred choice at 16% interest? What is the break-even interest rate?