Polymer Molding, Inc. is considering two processesfor

Chapter 6, Problem 6.14

(choose chapter or problem)

Polymer Molding, Inc. is considering two processesfor manufacturing storm drains. Plan A involvesconventional injection molding that will requiremaking a steel mold at a cost of $2 million. Thecost for inspecting, maintaining, and cleaningthe molds is expected to be $60,000 per year. Sincethe cost of materials for this plan is expected tobe the same as for the other plan, this cost is notincluded in the comparison. The salvage value forplan A is expected to be 10% of the first cost. PlanB involves using an innovative process known asvirtual engineered composites wherein a floatingmold uses an operating system that constantly adjuststhe water pressure around the mold and thechemicals entering the process. The first cost totool the floating mold is only $795,000, but becauseof the newness of the process, personnel andproduct-reject costs are expected to be higher thanfor a conventional process. The company expectsthe operating costs to be $85,000 for the first yearand then decrease to $46,000 per year thereafter.There will be no salvage value with this plan. At aninterest rate of 12% per year, which process shouldthe company select on the basis of an annual worthanalysis over a 3-year study period?