57. A $5,000 process improvement project is expected to increase annual expenses for the next 3 years
Question:
57. A $5,000 process improvement project is expected to increase annual expenses for the next 3 years by an average of $20,000 with a standard deviation of $3,000. The annual savings generated over the 3 years will average
$24,000 with a standard deviation of $4,000. MARR is 20%. Assume independent cash fl ows.
For the following questions, determine an analytical solution:
a. Assuming that present worth is normally distributed, determine the probability that the process improvement will result in a loss.
b. Assuming that present worth is normally distributed, determine the probability that the process improvement will result in a present worth of
$10,000 or greater.
c. Using a Monte Carlo simulation with 10,000 iterations, estimate the probability that the process improvement will result in a loss and the probability that the present worth is $10,000 or greater.
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