Engineering Economy255330Assignment 13
Formalized Sensitivity Analysis and Expected Value Decisions.
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
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, $
Cash flow, $/year
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 -
0.35 0.15 0.45 0.05(E(flow
) = 195 barrels/day ,E(flow
) = 220 barrels/day)