### Considering two alternatives for manufacturing certain part

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##### Reference no: EM131522504

A company is considering two alternatives for manufacturing a certain part. Method R will have a first cost of \$40,000, an annual operating cost of \$25,000, and a \$10,000 salvage value after its five year life. Method S will have an initial cost of \$100,000, an annual operating cost of \$15,000, and a \$12,000 salvage value after its 10 year life. At an interest rate of 12% per year, which alternative should be chosen?

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