Determine sensitivity to variation in life

Reference no: EM131004436

Hammond Watches, Inc. is about to purchase equipment that will significantly improve the light reflected by the watch dial, thus making it easier to read the time in very low light environments. Most likely estimates are P = $80,000, n = 10 years, S = 0, and increased net revenue after expenses of $25,000 the first year decreasing by $2000 per year thereafter. The VP of Manufacturing is concerned about the project's economic viability if the equipment life varies from the 10-year estimate, and the VP of Marketing is concerned about sen- sitivity to the revenue estimate if the annual decrease is larger or smaller than the $2000. Use MARR = 15% per year and PW equivalence to determine sensitivity to

(a) variation in life for 8, 10, and 12 years, and

(b) variation in revenue decreases from 0 to $3000 per year. Plot the resulting PW values for each parameter.

Reference no: EM131004436

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