Problem
A factory has to install a smoke reduction system or pay a fine of $10,000 per month. The design of the system is outsourced to an A&E firm for $60,000 and takes six months to complete. The assembly, installation, and test are to be done on site. The cost of material is $100,000, the cost of labor is $60,000, and it takes eight months to bring the system to the operational level and avoid the penalty payment. The system needs an equivalent of one person at $25,000 per year to operate. The life of the system is five years, and the cost of removal and salvage value are the same. What is the LTW? The payments are made at the end of performance. Do not consider tax and depreciation. Use a 10% per year interest rate.