Question: The purchase of a new piece of electronic measuring equipment for use in a continuous metal forming process is being considered. If this equipment were purchased, the capital cost would be $418,000, and the estimated savings are $148,000 per year. The useful life of the equipment in this application is uncertain. The estimated probabilities of different useful lives occurring are shown in the following table. Assume that MARR=15% per year before taxes and the market value at the end of its useful life is equal to zero. Based on a before-tax analysis,
a. What are the E(PW), V(PW), and SD(PW) associated with the purchase of the equipment?
b. What is the probability that the PW is less than zero? Make a recommendation and give your supporting logic based on the analysis results.
