Monica's Metal Fabrication Business has just been ordered by the court to install a pollutioncontrol device on the exhaust system of one of its production processes. The business' required rate of return is 20 per cent. Two devices are on the market.

Device A costs \(\$ 45000\) and is expected to last 12 years, after which it would have a zero residual value. It costs \(\$ 1500\) per year to operate and maintain.

Device B costs \(\$ 30000\) and would last only six years, after which it would have a residual value of \(\$ 2500\). If device B is purchased, Monica would have to replace it in six years. The second unit would have an expected cost at that time of \(\$ 45000\). The second unit would also be expected to have a residual value of \(\$ 2500\) at the end of its six-year life. Both the first and second unit of device B cost \(\$ 2000\) per year to operate and maintain.

Required:
a By calculating the net present value of the investment for each of the devices, determine which pollution-control device Monica should purchase.
b How much per year would the court have to fine Monica for ignoring the order to ensure that it would be less expensive (in terms of present value of costs) for the business to comply with the court order by purchasing one of the devices?
c Suppose the court fine is less than the cost of complying with the court order. What else should Monica's Metal Fabrication consider as it decides what to do?