A car manufacturing company is planning to expand its manufacturing capacity and its demand by adding a new technology. Technology A costs $10,000,000 to purchase and has a maintenance cost of $30 per new customer and operating cost of $25 per unit produced, both paid at the end of the year. Technology B costs $15,000,000 to purchase and its maintenance and operation cost will not depend on the number of users or production. The maintenance cost for this technology is expected to be $65,000 monthly (payable at the end of each month) and operating cost of $50,000 annually payable at the end of each year. The demand for this company is seasonal. In Spring, they are expected to have an average of 5000 customers, followed by Summer with an average demand of 4000, Fall with an average demand of 2000 and Winter with an average demand of 500. This demand is expected to increase by 5% every year. Salvage value for technology A is $0 and technology A has a lifetime of 5 years. Salvage value for technology B is $1,000,000 and technology B has a lifetime of 10 years. Interest rate is 7% per year compounded monthly. a) Draw the cash-flow diagram for alternatives A and B. [5 points) I
b) What is the present worth of both technologies? Which technology do you recommend and why?