An investment to modernize a distribution center is being considered. Specified automated storage and retrieval equipment has been proposed for the storage of pallet loads of product. The building has a projected life of 30 years, and the storage/retrieval equipment has a projected life of 15 years. A 12 percent MARR is being used. It is anticipated the new warehouse will require 70 fewer employees than the present system. Each employee costs approximately $27,500/year, including fringe benefits. The building is estimated to cost $3,750,000 and the material handling and storage equipment is estimated to cost $4,250,000. Annual operating and maintenance costs for the building and equipment are estimated to be $225,000/year more than the current operation. If the current warehouse is replaced with the automated warehouse, existing equipment can be sold at an estimated value of $750,000.
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