Problem
Central Foundry wants to use an additive model for choosing its best approach to a particular casting problem. Management has decided that the expected value should receive 50% more weight than the standard deviation of the EACs. Assume i = 9%.
Alternative A has a first cost of $100K and no salvage value after 10 years. The probability of marginal results is .3, and the annual operating costs will be $25K. The probability of good results is .5, and the annual operating costs will be $10K. The annual operating costs for excellent results will be $5K.
Alternative B has an annual operating cost of $15K and no salvage value after 10 years. With a probability of .4, the first cost will be $80K. With a probability of .5, the first cost will be $105K. The highest possible first cost is $140K.
(a) What is the expected value and standard deviation of each alternative's EAC?
(b) What is the scoring function for each criteria, the score of each alternative, and which should be chosen?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.