A business has a choice between two different forklifts. Type A costs $30,000 and will last for 5 years. However, it is relatively cheaply built and will cost $3,000 every year to operate and maintain (O&M). The O&M is expected to increase by $150 every year. In addition, it will have to have a major overhaul at the end of year 3, which is estimated to cost $10,000 then. The other option, Type B is more expensive to buy, $45,000, but has reduced O&M of $2,000 every year. It is expected to last 5 years also. Salvage value of Type A is $5,000 and Type B $8,000 at the end of 5 years. Which is the better option by Rate of Return analysis? What is the exact ROR?

$10,000 $5,000 Type A 7 S 9 10 -$10,000 -$3, -$3,150 -$3, 450 -53,600 -$3,800 -$10,000 $30,000 -$30,000 -$50,000 Capex O&M Overhaul Salvage Value $10,000 $8,000 Type B 2 9 10 -$10,000 -$2,000 $2,000 -$2,000 -$2,000 $2,000 -$30,000 -$50,000 $45,000 1 CapEx O&M 1 Savage Value $10,000 $5,000 Type A 7 S 9 10 -$10,000 -$3, -$3,150 -$3, 450 -53,600 -$3,800 -$10,000 $30,000 -$30,000 -$50,000 Capex O&M Overhaul Salvage Value $10,000 $8,000 Type B 2 9 10 -$10,000 -$2,000 $2,000 -$2,000 -$2,000 $2,000 -$30,000 -$50,000 $45,000 1 CapEx O&M 1 Savage Value