A Manufacturer of Neighborhood Electric Vehicles NEVs) Plans to Upgrade

Essay

A manufacturer of Neighborhood Electric Vehicles NEVs) plans to upgrade its parts inventory tracking system. Two alternatives are under consideration. The estimated costs of each alternative are provided below. At the end of 9 years, alternative E will need to be upgraded with additional costs of $19,300 over the initial cost of the system. The upgrade will reduce the annual maintenance costs by $2000 over the next 9 years. Which alternative should be selected on the basis of their future worth at an interest rate of 17% per year and a study period of 18 years? Assume negligible salvage value.