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Two different methods of solving a production problem are under consideration. Relevant information for both methods are given in TABLE Q3. The firm's MARR is
Two different methods of solving a production problem are under consideration. Relevant information for both methods are given in TABLE Q3. The firm's MARR is 10%. TABLE Q3 Costs Method A Method B Initial Costs 52,000 80,000 Annual Operating Costs 17,000 22,000 Annual Revenue 16,000 16,000 + X Salvage Value 15,000 20,000 Analysis Period (Year) 6 6 MARR 10% 10% (a) What would be the required additional annual revenue for Method B such that an engineer would be indifferent to choosing one method over the other? Use PW method. [20 marks] (b) Plot PW versus uncertainty to show the sensitivity of PW towards the uncertainty of Annual Operating Costs relative to base case for Method A. Assume all other parameters are unchanged. Plot the curve for + 50% uncertainty. [10 marks]
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