Additional equipment must be purchased in a warehouse to meet an increased workload. It is estimated that the equipment would handle an additional 4,000 tons of goods per year, for which the estimated income would be $8 per ton. The equipment will cost $30,000. Its service life is estimated to be 10 years, and the estimated annual maintenance and operations costs are $15,000.

[Note. Assume the analysis is performed before taxes.]

a) Compute the project's Annual Equivalent (AE), if the MARR is equal to 12% per year. What would you recommend to the firm? Answer: AE(12%) = $11,690.5. Accept the project.

b) Compute the project's Annual Equivalent (AE), if the MARR is equal to 30% per year and the additional workload per year was estimated to be 3,000 tons. What would you recommend to the firm?

Answer: AE(30%) = - $703.9. Accept the project.