From
R = 12%
Investment = $30000
O&M cost per year = $1000
Time = 20 years
Salvage value = $10000
Present value of above investment = initial investment at year 0 + present value of O&M cost - present value of the salvage value
Present value of above investment = 30000 + 1000*(1-1/(1+12%)^20)/.12 - 10000/1.12^20
Present value of above investment = $36432.78
Since, the present worth of the investment is relatively lower in scenario 2 ($36432.78) in comparison to the scenario 1 ($41852.67).
Question If a sensitivity analysis was performed on scenario 2 machine in problem 4.2, by varying the purchase price, and the useful life (that is 2 factors) by + 20% each, how many PV calculations you have to make, and how many points you will plot for the sensitivity analysis. (You do not have to do the analysis, just show the numbers)
- Number of PV calculations?
- Number of points to plot on the sensitivity curve?