The A manufacturing company is deciding between three maintenance plans for a ne

Question

The A manufacturing company is deciding between three maintenance plans for a new waste management system. Plan A needs a single prepayment of $59,000 at the beginning of the year and the contract needs to be renewed every 3 years. Plan B is a two-year contract and requires a payment of $19,470 at the end of year 1 and another payment of $20,060 at the end of year 2. Plan C provides a three-year services with two payments of $29,500 made at the end of years 1 and 3. Which maintenance plan should be selected? Assume the company uses a MARR of 11% and a study period of 6 years.

Plan A

Plan B

Plan C

1.

Plan A

2.

Plan B

3.

Plan C

Explanation / Answer

Plan B has lowest cost.

Plan B

Year 0 1 2 3 4 5 6 A 59000 59000 B 19470 20060 19470 20060 19470 20060 C 29500 29500 29500 29500 NPV of A $112,153.15 NPV of B $83,551.52 NPV of C $91,522.15

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