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Two mutually exclusive investment alternatives are being considered by an automotive engineering manufacturer, and one of them must be selected. Alternative A requires an initial investment of £13,000 in equipment. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of £5,000 and a standard deviation of £500. The terminal salvage value at the end of the eight-year planning horizon is anticipated to be normally distributed, with a mean of £2,000 and a standard deviation of £800. Alternative B requires end-of-year annual expenditures over the eight-year planning horizon, with the annual expenditure being normally distributed with a mean of £7,500 and a standard deviation of £750. Using a MARR of 15% per year, what is the probability that Alternative A is the most economic alternative (i.e., the least costly)? Hint: The addition or subtraction of two normally distributed random variables is a normally

Two mutually exclusive investment alternatives are being considered by an automotive engineering manufacturer, and one of them must be selected. Alternative A requires an initial investment of £13,000 in equipment. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of £5,000 and a standard deviation of £500. The terminal salvage value at the end of the eight-year planning horizon is anticipated to be normally distributed, with a mean of £2,000 and a standard deviation of £800. Alternative B requires end-of-year annual expenditures over the eight-year planning horizon, with the annual expenditure being normally distributed with a mean of £7,500 and a standard deviation of £750. Using a MARR of 15% per year, what is the probability that Alternative A is the most economic alternative (i.e., the least costly)? Hint: The addition or subtraction of two normally distributed random variables is a normally

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two mutually exclusive investment alternatives are being considered by an automotive engineering manufacturer, and one of them must be selected. Alternative A requires an initial investment of £13,000 in equipment. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of £5,000 and a standard deviation of £500. The terminal salvage value at the end of the eight-year planning horizon is anticipated to be normally distributed, with a mean of £2,000 and a standard deviation of £800. Alternative B requires end-of-year annual expenditures over the eight-year planning horizon, with the annual expenditure being normally distributed with a mean of £7,500 and a standard deviation of £750. Using a MARR of 15% per year, what is the probability that Alternative A is the most economic alternative (i.e., the least costly)? Hint: The addition or subtraction of two normally distributed random variables is a normally distributed random variable.
Transcribed Image Text:Two mutually exclusive investment alternatives are being considered by an automotive engineering manufacturer, and one of them must be selected. Alternative A requires an initial investment of £13,000 in equipment. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of £5,000 and a standard deviation of £500. The terminal salvage value at the end of the eight-year planning horizon is anticipated to be normally distributed, with a mean of £2,000 and a standard deviation of £800. Alternative B requires end-of-year annual expenditures over the eight-year planning horizon, with the annual expenditure being normally distributed with a mean of £7,500 and a standard deviation of £750. Using a MARR of 15% per year, what is the probability that Alternative A is the most economic alternative (i.e., the least costly)? Hint: The addition or subtraction of two normally distributed random variables is a normally distributed random variable.
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