Two material handling alternatives are being considered for a new distribution center.

The first involves a smaller capital investment but larger operating costs. Specifically, alternative A involves an initial investment of $250,000 and has annual operating expenses of $600,000. Alternative B involves an initial investment of $1,000,000 and has annual operating expenses of $300,000. Both alternatives are assumed to have negligible salvage values at the end of the 10-year planning horizon. A minimum attractive rate of return of 10% is used for such analyses.

a. Using NPV, AW, and FW analyses, which is preferred?

b. What is the IRR on the $750,000 incremental investment required for alternative B?

c. Determine the payback period and the discounted payback period for the $800,000 incremental investment required for alternative B.