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 $32,000. Alternative 2 involves the use of two electric pallet movers (“walkies”) each with a 3000-pound capacity (for each mover, P = $?2000; n = 4 years; AOC = $?150 per year; no salvage) and 800 pal­lets at $10 each. The two operators’ salaries and benefits will total $55,000 per year. For both op­tions, new pallets are purchased now and every 2 years

Question

that the equipment is in use. (a) If the MARR is 8% per year, select the better alternative. (b) Rework using a spreadsheet solution.

What will be an ideal response?

Answer 1

(a) AWForklift = CR – AOC – salary – AW of pallets

= -30,000(A/P,8%,12) + 8000(A/F,8%,12) – 1000 - 32,000

-500(10)[1+(P/F,8%,2)+(P/F,8%,4)+(P/F,8%,6)+(P/F,8%,8)

+(P/F,8%,10)](A/P,8%,12)

= -30,000(0.13270) + 8000(0.05270) – 33,000

-5000[1+(0.8573)+(0.7350)+(0.6302)+(0.5403)+(0.4632)](0.13270)

= $-39,363



AWWalkies = -(2)2,000(A/P,8%,4) – 2(150) – 55,000

- 800(10)[1+(P/F,8%,2)](A/P,8%,4)

= -4000(0.30192) – 55,300 – 8000[1+(0.8573)](0.30192)

= $-60,994



Select forklift



(b) Functions shown. Select forklift.