An existing company has to increase its manufacturing facilities in order to keep their market share.One alternative is to expand the present plant.If this is done the expansion will cost $500,000. In addition, labor costs will increase by $300,000 per year while additional costs for overhead, depreciation, taxes and insurance would be $250,000 per year.
A second facility requires construction and operation of new facilities at a location about 100 km. from the present plant.At the new location cheaper labor would be available.The new facilities would cost $700,000.The labor cost would be 200,000 per year while overhead, depreciation, taxes and insurance would total up to $300,000.If the minimum rate of return on investment is 20%, determine the minimum service life for which the facilities at the distant location would be profitable.Do not take depreciable life and service life to be the same.