A group of  Mr. Lugwrench engineers spent 4 years and $50,000 to develop a new pressure test system for coolant hoses with the Old Faceful Corporation.  Purchasing quoted the system out, and two systems are being considered - Old Faceful and Blowitoff. 

Estimated costs and benefits are:

                                    Old Faceful                 Blowitoff

Initial Cost                  $30,000                       $ 70,000

Salvage Value             10% of init cost           $          0

Useful Life                  3 Years                        7 Years

Net Savings per Year  $15,000                       $20,000

A. Using either an annual cash flow analysis or present worth analysis, if i = 4% and  the need is projected to be ongoing, recommend which alternative, if any should be chosen.  Show your calculations and list your assumptions and selection criterion.

B. Should the $50,000 development cost be considered in the decision?  Explain.