A project engineer with EnvironCare is assigned to start up a new office in a city where a 6-year contract has been finalized to take and to analyze ozone-level readings. Two lease options are available, each with a first cost, annual lease cost, and deposit-return estimates shown below.
|
|
Location A
|
Location B
|
|
First cost, $
|
-15,000
|
-18,000
|
|
Annual lease cost, $ per year
|
-3,500
|
-3,100
|
|
Deposit return, $
|
1,000
|
2,000
|
|
Lease term, years
|
6
|
9
|
a) Determine which leave option should be selected on the basis of a present worth comparison, if the MARR is 15% per year.
b) EnviroCare has a standard practice of evaluating all projects over a 5-year period. If a study period of 5 years is used and the deposit returns are not expected to change, which location should be selected?
c) Which location should be selected over a 6-year study period if the deposit return at location B is estimated to be $6,000 after 6 years?