Video Solution A pork processing facility is considering the installation of either a storage facility or a holding pond. A biosystems engineer has been hired to evaluate the economic trade-offs for the two alternatives. The engineer estimates the cost of the storage facility to be

$213,000, with annual costs for maintenance to be $3,200 per year. She estimates the cost of the pond to be $90,000, plus $45,000 for pumps and piping, and annual operating and maintenance costs for the holding pond are estimated to be $8,500. The engineer estimates the life of the storage facility and the pond to be around 20 years but is concerned about the accuracy of this estimate. She decides to do a sensitivity analysis.

a. Develop the equation that she would use to determine how sensitive the economic decision is to changes in life. Use a MARR of 15%.

b. Determine which alternative is preferred for lives ranging from 15 to 25 years.