Aqua Tech Testing is considering investing in a new testing device. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after five years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of a higher initial quality, the company expects it to have a salvage value at the end of its useful life. The company provided the following estimates:

The company's cost of capital is 9%.
Instructions
(a) Calculate the
(1) Net present value,
(2) Profi tability index, and
(3) Internal rate of return for each option.
(b) Determine which option the company should accept.

Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 5) Salvage value Estimated useful life Option A $ 90,000 180,000 160,000 26,500 0 8 years Oplieni $170,000 140,000 108,000 0 27,500 8 years