A companys demand for a given component for the next 12 years is expected to be 1000/year.

They have two options to have the component available for their production requirements, buying (option A) or making the component

(option B). Details of the two options are given below:

Option A : Three machines A,B, and C are needed to produce the component with initial costs of $150,000, $200,000, and $400,000 respectively. Salvage values for A,B, and C are $10,000, $20,000, and $30,000. Since the production process will continue for 12 years, an additional unit of any machine will be available for the same price (initial cost) , when needed, and will have the same salvage value at the end of its useful life. Useful lives are 10,15,20 years for machines A,B, and C respectively. A total production costs per year is estimated to be $100,000/year.

Option B: Buying the component for $500 and saving an amount of $60,000/year from utilizing the saved space for different purposes.

Use i= 10% to find the optimal solution.