Sam is considering buying a new lawnmower. He has a choice between a "Lawn Guy" model or a Bargain Joe's "Clip Job" model. Sam has a ALARR of 5%. The mowers' salvage values at the end of their respective service lives are zero. Sam has collected the following information about the two mowers.
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Lawn Guy
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Clip job
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First Cost
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$ 350
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$120
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Life
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10 years
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4 years
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Annual gas
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$ 60
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$ 40
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Annual maintenance
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$ 30
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$ 60
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Although Sam has estimated the maintenance costs of the Clip Job at $60, he has heard that the machines have had highly variable maintenance costs. One friend claimed that her Clip Job had maintenance costs comparable to those of the Lawn Guy, but another said the maintenance costs could be as high as $80 per year.
Construct a table that shows the annual worth of the Clip Job for annual maintenance costs varying from $30 per year to S80 per year.
What Clip Job maintenance costs would make Sam indifferent between the two mowers, on the basis of annual worth?
Construct a graph showing the break-even maintenance costs. Which mower would you recommend to Sam?