year Production in units Cost per unit A*r

1 40000 .60 24000 20,000

2 60000 .60 36000 25,000

3 80000 .60 48000 27,777.7778

4 90000 .60 54000 26,041.6667

5 90000 .60 54000 21,701.3889

6 90000 .60 54000 18,084.4907

7 90000 .60 54000 15,070.4090

8 90000 .60 54000 12,558.6741

9 90000 .60 54000 10,465.5618

10 90000 .60 54000 8,721.3015

Alternative 2 MODEL 700

NPV= -300,000+185,421.2705

NPV= -114,578.7295

C
PV= --------
(1+r)t
Alternative 1 MODEL 300

Production in units Cost per unit A*r

1 40000 .80 32000 26,666.6667

2 60000 .80 48000 33,333.3333

3 80000 .80 64000 37,037.0370

4 90000 .80 72000 34,722.2222

5 90000 .80 72000 28,935.1852

6 90000 .80 72000 24,112.6543

7 90000 .80 72000 20,093.8786

8 90000 .80 72000 16,744.8988

9 90000 .80 72000 13,954.0824

10 90000 .80 72000 11,628.4020

NPV= -170000+247,228.3605

NPV=77,228.3605