our company is considering two plans for biomedical scanning equipment that it will use over the next nine years. Analyze these two plans assuming an annual interest rate of 7%. Plan A: The company would purchase a top-of-the-line scanner today at a cost of $350,000. The system has a useful life of 9 years, and a resale value of $85,000 after its useful life is over. Plan B: The company would lease a modern scanner for a 3-year period by signing a lease agreement. Today, the lease contract for a modern scanner is $95,000, with the payment due at the time of signing. However, since scanner technology improves over time, you expect the price for a new lease agreement to be higher in the future. Based on current trends, you expect the price of a new lease agreement to be 12% more each year than it was the year before. Since the company does not own the equipment, it must be returned after three years (i.e., no resale value).

3 Based on past experience, the cost to operate and maintain a biomedical scanner is $62,000 per year. Assume that this cost is incurred for both Plan A and Plan B. a) Draw the cash flow diagram for Plan A from the perspective of the company (to determine up and down arrows) for the nine-year period. b) Draw the cash flow diagram for Plan B from the perspective of the company (to determine up and down arrows) for a nine-year period. Be sure to account for the changing cost structure of the lease agreement. c) Do an equal comparison cost analysis and recommend which system should be chosen (based on economic criteria). Use a present worth basis compare projects over the nine-year period (to account for unequal design lives). Show calculations for (1) capital costs, (2) operation and maintenance costs, and (3) salvage value, in addition to the total cost used to compare the two systems.