You have been asked to perform a sensitivity analysis on a company’s plan to modernize its facilities to determine the impact of possible errors in estimating the net annual savings. The initial investment in the modernization is $30,000. The expected net annual savings are $13,000. The salvage value is $7,000 after a planning horizon of 7 years. MARR is 12% per year. Solve, a. Determine if the modernization is economically attractive based on the initial estimates and an annual worth (AW) analysis. b. Determine the AW if the net annual savings change by the following percentages from the initial estimate: −80%, −60%, −40%, −20%, +20%, +40%. c. Determine the percentage change in net annual savings that causes a reversal in the decision regarding the attractiveness of the project.
You have been asked to perform a sensitivity analysis on a company’s plan to modernize its facilities to determine the impact of possible errors in estimating the net annual savings. The initial investment in the modernization is $30,000. The expected net annual savings are $13,000. The salvage value is $7,000 after a planning horizon of 7 years. MARR is 12% per year. Solve, a. Determine if the modernization is economically attractive based on the initial estimates and an annual worth (AW) analysis. b. Determine the AW if the net annual savings change by the following percentages from the initial estimate: −80%, −60%, −40%, −20%, +20%, +40%. c. Determine the percentage change in net annual savings that causes a reversal in the decision regarding the attractiveness of the project.
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