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In: Economics

A company needs a modern material handling system for facilitating access to and from a busy...

A company needs a modern material handling system for facilitating access to and from a busy warehouse. If the company’s management use a MARR (given in the below table for each group) in their economic decisions.The company found two systems, the first system is a second-hand and the second system is a new system. The economic consequences of both systems are given in the below table for each group. PART 2: Considering the two mutually exclusive alternatives and assume permanent need for the system (repeatability assumption).

a) Determine the unfavorable system’s investment cost at which the company would be indifferent between alternatives. (For example, if when you analyze the problem, you pick the new system, determine the investment cost of the second-hand system that makes it on same level of economic desirability).

MARR = 21.6% per year

Second hand system

Investment cost = $192,500

Annual expenses = $51,800

Annual saving = $104,500

Useful life = 8 years

Salvage value = $68,000

NEW system

investment cost = $312,500

annual expenses = $52,300

first year savings = $127,000 decreasing by $1,000 each year thereafter

useful life = 16 years

salvage value = $99,000

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