Question

1. You are responsible for designing a material handling system that utilizes a large number of pallets that are moved with forklift trucks. There are three choices for pallets:

• Wooden pallets costing $80 each that last an average of one year,
• Foam plastic pallets costing $300 each that last four years,
• Metal pallets that cost $500 each that last twelve years.

  Determine the economical choice, if the APR is 4%.

Answer 1

We calculate the Equivalent annual cost of each option assuming that the cost is paid immediately.

This is calculated using PMT function in excel

Choice	EAC
1	$80.00
2	$79.47
3	$51.23

Choice 3- Metal pallets have the least annual cost and hence should be selected.