Blue Whale Moving and Storage recently purchased a warehouse building in Santiago. The manager has two good options for moving pallets of stored goods in and around the facility. Alternative 1 includes a 4000-pound capacity, electric forklift (P = $−30,000; n = 12 years; AOC = $−1000 per year; S = $8000), and 500 new pallets at $10 each. The forklift operator’s annual salary and indirect benefits are estimated at $82,000.
Alternative 2 uses two electric pallet movers ("walkies") each with a 3000-pound capacity (for each mover, P = $−2,000; n = 4 years; AOC = $−150 per year; no salvage) and 800 pallets at $10 each. The two operators’ salaries and benefits will total $105,000 per year. For both options, new pallets are purchased now and every two years that the equipment is in use.
a. If the MARR is 8% per year, use tabulated factors to determine which alternative is better economically.