Acme Manufacturing Inc. is trying to improve their manufacturing process for jet powered roller skate (which are perfect for catching the roadrunner). Currently, with one worker their assembly operation can produce 10 pairs of skates per hour. Acme does not want to add more labor and is therefore considering several methods that will increase their production capacity. These options introduce different levels of automation to the process. The main differences in these options are primarily the speed of production per year and the level of skilled labor required for each. Acme has asked you to evaluate these options, details of which are in the table below, and recommend the best course of action. They anticipate requiring 9600 pieces each year for the next 20 years.

(a) Assume that Acme has an MARR rate of 12%. Compare each of the proposed changes with the current state and using an incremental rate of return analysis approach, determine if there are sufficient savings provided from each option to justify the investment.
(b) Again assume that Acme has an MARR rate of 12% and determine which of these four options is the most economical, based on rate-of-return analysis.

Enhanced Hand Fully Hand Assembly (Current State) Semi-Automated Outsource Assembly Automated (Option 2) (Option 4) (Option 1) (Option 3) Production Related Information Pieces per hour 10 20 30 25 Production Costs Labor (per hour) Power (per hour) O&M (per month) Capital Investment Equipment purchase Set-up Fee Estimated Salvage Value $20 $12.75 $15 $20 $9.75 $22 $260 $15.00 $17.50 $50 $24,000 $35,000 $27,500 $37,500 $2,000 $10,000 $2,750 Other Costs Purchase Price (per piece) $1.75