A warehouse modernization plan requires an investment of $8 million in equipment; at the end of the

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A warehouse modernization plan requires an investment of $8 million in equipment; at the end of the 10-year planning horizon, it is anticipated the equipment will have a salvage value of $750,000. Savings in operating and maintenance costs due to the modernization are anticipated to total $1.75 million per year. A MARR of 10% is used by the firm.

a. Perform a sensitivity analysis to determine the effects on the economic viability of the plan due to errors in estimating the initial investment required, as well as the magnitude of the annual savings.

b. If annual savings in operating and maintenance costs are normally distributed and statistically independent with a mean of $1.75 million and a standard deviation of $0.25 million, determine mathematically the probability of the investment being profitable.

c. For the conditions in part

b, perform a Monte Carlo simulation to obtain an estimate of the probability of the investment being profitable.

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Facilities Planning

ISBN: 9780470444047

4th Edition

Authors: James A. Tompkins, John A. White, Yavuz A. Bozer, J. M. A. Tanchoco

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