Question
An investment of $400,000 is made at time zero. Revenues are expected to grow from $100,000 at time 1 by $50,000 each year for the
An investment of $400,000 is made at time zero. Revenues are expected to grow from $100,000 at time 1 by $50,000 each year for the next six years while costs are expected to remain steady at $50,000 per year. The seven-year project has no salvage value. Is the present worth (use a MARR of 18%) more sensitive to the investment cost or to the value of the gradient? It is believed that the investment cost will be within -10% to 10% of its estimate, the gradient value will be within -15% to 30% of its estimate, the first year's revenue will be within -15% to 20% of its estimate, and the annual cost will be within -15% to 20% of its estimate.
a. Construct a tornado diagram to determine the most critical.
b. Construct a spider plot to determine whether the investment cost or the revenue gradient is more sensitive. Also identify, if any, parameters to which the decision is sensitive.
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