A manufacturing firm can buy a workstation for $10,000. The useful life of the workstation is estimated to be 3 years and the market value after 3 years should be $1,000. Operating expenses are estimated at $20 per eight-hour workday and maintenance will be performed at $4,000 per year. The effective income tax rate is 40% and the depreciation deduction is calculated using the Linear Method. Alternatively, sufficient processing time can be rented from a service company at an annual cost of $10,000. The workstation is planned to be used for 100 working days per year. 

Determine if renting is a better alternative to buying using annual value analysis. Suppose operating expenses are associated with ownership. The after-tax MARR is 10% per annum.

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To determine whether renting or buying the workstation is a better alternative we need to calculate ... View the full answer