2. You have been asked to perform a sensitivity analysis on a plant modernization plan. The initial investment is $30,000. Expected annual savings is $13,000. Salvage value is $7,000 after a 7 year planning horizon. The MARR is 12%a. Determine the PW of this modernization.cion 42.b. -80%cion 52.c. -60%cion 62.d. -40%zion 72.e. -20%cion 82.f. +20%tion 92.g. +40%cion 102.h. Determine the percentage change in net annual savings that causes a reversal in the decision regarding the attractiveness of the project1010000010-1000

Initial Investment = 30000 Annual Savings = 13000 Useful life = 7 Salvage Value = 7000 MARR = 12% Present worth refers to the discounted value of all the cash flows .Present Worth = -300000 + 13000(P/A , 12% , 7 ) + 70000(P/F , 12% , 7 ) => -300000 + 13000(4.563756539 ) + 7000(0.4523492153) => 32430 As the PW is positive the modernization is feasible . For modernization to not be feasible : PW < 0 Let the saving rate be (x) PW = -300000 + x(4.563756539 ) + 7000(0.4523492153) < 0 x < 26836/4 x < 6709 (Saving less than 6709 will make modernization not worth it ) Percentage Change = 13000- 6709)/13000 = 48% Decline of more than 48% in savings would make the modernization feasible .

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2. You have been asked to perform a sensitivity analysis on a plant modernization plan. The initial investment is $30,000. Expected annual savings is $13,000. Salvage value is $7,000 after a 7 year planning horizon. The MARR is 12% a. Determine the PW of this modernization. n 4 2.b. -80% n 5 2.c. -60% n 6 2.d. -40% n 7 2.e. -20% 10 10 Oc Oc

2. You have been asked to perform a sensitivity analysis on a plant modernization plan. The initial investment is $30,000. Expected annual savings is $13,000. Salvage value is $7,000 after a 7 year planning horizon. The MARR is 12% a. Determine the PW of this modernization. n 4 2.b. -80% n 5 2.c. -60% n 6 2.d. -40% n 7 2.e. -20% 10 10 Oc Oc

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A company is considering purchasing either machine A or B, given that MARR is 10%, and the company projected sales is 40,000 units. Machine A Machine B $90,000 $39,000 $1100 +.02xunits $600 +0.03xunits Initial cost $70,000 $40,000 $1000+0.03xunit $500+0.05xunit 8 years $15,000 Annual revenues Annual Operation cost Annual Maintenance cost 6 years $10,000 Life span Salvage value Draw the cash fiow diagram for each machine. a. b. Compute ERR for each machine, based on computed ERRS, which machine is to be selected7 Explain the difference between the IRR & ERR methods as explained in the lecture.
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