A new device is being purchase for a certain project in a local community. The following financial parameters have been estimated: Initial cost $100,000 Annual savings (AS) $20,000 Useful life (N) 10 years Salvage value (end of 10 years) $30,000 MARR (annual) 10% There is considerable uncertainty surrounding the estimates of annual savings--- between -20% and +25%, and useful life---7 years to 12 years. a) Construct the best and worst scenarios b) Draw a spider plot (PW v.s. %), and conclude whether any of the two is sensitive, and which of the two is more sensitive. First compute the following: (Interest Table for 10% is given) Nominal PW = -100K+ 30K*(P/F,10%,10) +20K*(P/A,10%,10) =$34,458 PW(AS=80% )= -100K+30K*(P/F,10%,10)+16K*(P/A,10%,10) =$9,879 PW(AS=125% )= -100K+30K*(P/F,10%,10)+25K*(P/A,10%,10) =$65,180 PW(N=70% )= -100K+30K*(P/F,10%,___)+20K*(P/A,10%,___) =______________________ PW(N=120% )= -100K+30K*(P/F,10%,___)+20K*(P/A,10%,___) =______________________ Then draw the spider plot and determine whether (i) PW is sensitive to either parameter and (ii) the decision is sensitive to either parameter. 7 c) Suppose we know that AS is distributed as a triangular distribution with the minimum value = $16K, the most likely value = $20K and the maximum value = $25K. Suppose we also know that integer N is uniformly distributed between 7 years to 12 years. Use the following independent uniform random number series to generate 5 scenarios (i.e. 5 replications of AS using the first series beginning from left, and 5 replications of N using the second series beginning from left also). Then compute PW at 10% MARR under the five simulated scenarios and the average PW. Compare this with the nominal PW in part (c) and comment Uniform random numbers to generate AS and N (begin from left to right): Series 1: 0.2350 0.9043 0.0418 0.7504 0.1237 0.4578 0.9887 0.7681 0.0348 0.5612... Series 2: 0.0965 0.9665 0.6484 0.4922 0.4950 0.1014 0.4845 0.2350 0.9043 0.0418... .Scenario: AS N PW 1 ________ ___ _________ 2 ________ ___ _________ 3 ________ ___ _________ 4 ________ ___ _________ 5 ________ ___ _________ Average PW _________