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Assignment 13

Assignment 13

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Published by: Grid G. on Jul 16, 2010
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Engineering Economy255330Assignment 13
Chapter 18
Formalized Sensitivity Analysis and Expected Value Decisions.
Due Date:
18.1
 
The Central Drug Distribution Center wants to evaluate a new materials handing system for fragile products. The complete device will cost $62,000 and have an 8-year life and a savage valueof $1,500. Annual maintenance, fuel, and overhead costs are estimated at $0.50 per metric tonmoved. Labor cost will be $8 per hour for regular wages and $16 for overtime. A total of 20 tons canbe moved in an 8-hour period. The center handles from 10 to 30 tons of fragile product per day. Thecenter uses a MARR of 10%. Determine the sensitivity of present worth of costs to the annualvolume moved. Assume the operator is paid regular wages for 200 days of work per year. Use a 10-metric-ton increment for the analysis. (PW at 10 tons/day = $-100,779 , PW at 20 tons/day = $-140,257 , PW at 30 tons/day = $-213,878)18.17 When the country’s economy is expanding, AB Investment Company is optimistic and expects aMARR of 15% for new investments. However, in a receding economy the expected return is 8%.Normally a 10% return is required. An expanding economy causes the estimates of asset life to godown about 20%, and a receding economy makes the
n
values increase about 10%. Plot thesensitivity of present worth versus (a) the MARR and (b) the life values for the two plans detailedbelow, using the most likely estimates for the other factors. (c) Considering all the analyses, under which scenario, if any, should plan M or Q be rejected?
Plan m Plan QInitial investment, $
-100,000 -110,000
Cash flow, $/year 
+15,000 +19,000
Life, years
20 2018.18 Calculate the expected flow rate for each oil well using the estimated probabilities.
Expected Flow, Barrels/Day
 
100 200 300 400North well
0.15 0.75 0.10 -
East well
0.35 0.15 0.45 0.05(E(flow
N
) = 195 barrels/day ,E(flow
E
) = 220 barrels/day)
 
18.24 (a) Determine the expected present worth of the following cash flow series if each series mayberealized with the probability shown at the head of each column. Let
= 20% per year.(E(PW) = $-2,463)(b) Determine the expected AW value for the same cash flow series.(E(AW) = $-1,169)
Annual Cash Flow, $/year year prob.=0.5 prob.=0.2 prob.=0.3
0 -5000 -6000 -40001 1000 500 30002 1000 1500 12003 1000 2000 -80018.30 For the decision tree branch shown, determine the expected values of the two outcomes if decision D3 is already selected and the maximum outcome value is sought. (This decisionbranch is part of a larger tree)(Select the top branch with E(value) = 5.0)18.32 Decision D4, which has a three possible alternatives-x, y, or z – must be made in year 3 of a 6 –year study period in order to maximize the expected value of present worth. Using a rate of return of 15% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made is year 3. (This decision node ispart of a larger tree.)

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