You are considering three methods for producing electricity in your company's manufacturing plant. An oil generator costs $350,000 and it has a useful life of five years. The costs of operating the oil generator require after-tax cash flows of $150,000 per year. A natural gas generator costs $250,000 and it has a useful life of eight years. The costs of operating the natural gas generator require after-tax cash flows of $250,000 per year. A biomass generator costs $450,000 and it has a useful life of six years. The costs of operating the biomass generator require after-tax cash flows of $100,000 per year. If your company's weighted average cost of capital is 9% per year, by which method should you generate electricity? What is annualized cost of producing electricity by the preferred method?

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