Grady's Garden Shed is upgrading its watering system. Grady is trying to choose between two different products.
The Water Factor has an initial cost of $117970. At the end of life, the system can be salvaged for $19627. Maintenance of the system is estimated to cost $1996 each year. The Water Factor will save $67600 per year in water costs. This system will require approximately 758 hours of employee time each year to monitor the system and perform maintenance and repairs. The Water Factor has a useful life of 3 years.
The WetThrift has an initial cost of $123673. At the end of life, the system can be salvaged for $35677. The WetThrift uses much less water, but it will require more employee hours to adjust settings and maintain it. Maintenance is estimated to cost $1825 each year. The WetThrift will save $123216 per year in water costs. This system will require approximately 2563 hours of employee time each year. The WetThrift has a useful life of 4 years.
Grady pays his employees $16 per hour.
Comparing the two alternatives using present worth analysis and an interst rate of 6% compounded annually.