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Homework answers / question archive / Two different methods of solving a production problem are under consideration

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 15%. TABLE Q3 Costs Method A Method B Initial Costs 52,000 80,000 17,000 22.000 16,000 16,000 + X Annual Operating Costs Annual Revenue Salvage Value Analysis Period (Year) MARR 15.000 20.000 6 6 15% 15% (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.

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