The Pentagon Is Deciding Between Two Models of Light- Duty

question 8

Essay

The Pentagon is deciding between two models of light- duty support vehicles proposed by two high- technology defense contractors. The costs associated with each model are shown below. Which model should be selected if the MARR is 16% per year based on the future worth method? $\begin{array}{|l|l|l|}\hline \text { Alternative } & \mathrm{A} & \mathrm{B} \\\hline \text { Initial R\&D costs } & \$ 481,000 & \$ 496,000 \\\hline \text { Non- recurring } & \$ 47,000 & \$ 72,000 \\\text { investment costs } & & \\\text { (Years } 1,3, \text { and 5) } & & \\\hline \text { Recurring costs } & \$ 15,000 \text { in year } 4, & \$ 16,500 \text { in year } 4,\\ &\text { increasing by } \$ 500 \text { until } & \text { increasing by } \$ 400 \text { until }\\&\text { year } 10&\text { year } 10 \begin{array}{l}\end{array} \\\hline \begin{array}{l}\text { Annual maintenance } \\\text { costs }\end{array} & \$ 3000 & \$ 5000 \\\hline \text { Disposal costs } & \$ 3000 & \$ 3500\\\hline \text { Life, years } & 14 & 14\\\hline\end{array}$

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