A petrochemical company decided that now is the time to expand their business into bioplastics. The...

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A petrochemical company decided that now is the time to expand their business into bioplastics. The first alternative is a hybrid technology which requires less initial investment or a more expensive full bio fueled system which will generate slightly higher revenues. The details can be found in the table below: Description Machinery/related equipment Annual revenues Annual labour cost Hybrid $12,250,000 Bio $24,000,000 $12,000,000 $13,750,000 $3,000,000 $1,050,000 Annual O&M cost CCA Rate Project life Salvage value $1,400,000 $2,000,000 35% 6 years $1,500,000 30% 6 years $400,000 The marginal tax rate is 40%. As both machines are imported, the prices are tied to foreign currency exchange rates and might vary by 20%. Revenues projections analysis indicates it might vary by 15%. labour costs and annual O&M are fixed under contracts. The company's MARR is 12%. Assume that each of these variables can independently deviate from its base value. a] Assuming that uncertain variables change once at a time, use NPW to conduct sensitivity analysis. Ideally, you should plot the relationship between percentage change in a variable and NPW. b] Now consider that each uncertain variable can take only three possible outcomes within the range of possible outcome: lowest value, base value, and highest value. Each outcome can happen with a probability: 0.2, 0.6, and 0.2, respectively. Considering the distributions of the three uncertain variables, predict the probability distribution of NPW for each alternative. Each NPW will have 9 possible outcome (3x3) and you are required to do that for each alternative. c] If Alternative 1 is chosen over Alternative 2, what is the probability that this decision is correct Hints: -do not forget to calculate income taxes and disposal tax effects -for ease of calculations assume that operating losses can be carried only to the next financial year to offset taxable income. For example, losses in Year 1 can reduce the taxable income of year 2 only. -You can use spreadsheet applications if you communicate your solution in a way which enables the teaching assistant to independently replicate your final answer. You can show sample calculations as a way to communicate with the teaching assistant. -Please assume that the given MARR is market interest rate and all dollars are current. A petrochemical company decided that now is the time to expand their business into bioplastics. The first alternative is a hybrid technology which requires less initial investment or a more expensive full bio fueled system which will generate slightly higher revenues. The details can be found in the table below: Description Machinery/related equipment Annual revenues Annual labour cost Hybrid $12,250,000 Bio $24,000,000 $12,000,000 $13,750,000 $3,000,000 $1,050,000 Annual O&M cost CCA Rate Project life Salvage value $1,400,000 $2,000,000 35% 6 years $1,500,000 30% 6 years $400,000 The marginal tax rate is 40%. As both machines are imported, the prices are tied to foreign currency exchange rates and might vary by 20%. Revenues projections analysis indicates it might vary by 15%. labour costs and annual O&M are fixed under contracts. The company's MARR is 12%. Assume that each of these variables can independently deviate from its base value. a] Assuming that uncertain variables change once at a time, use NPW to conduct sensitivity analysis. Ideally, you should plot the relationship between percentage change in a variable and NPW. b] Now consider that each uncertain variable can take only three possible outcomes within the range of possible outcome: lowest value, base value, and highest value. Each outcome can happen with a probability: 0.2, 0.6, and 0.2, respectively. Considering the distributions of the three uncertain variables, predict the probability distribution of NPW for each alternative. Each NPW will have 9 possible outcome (3x3) and you are required to do that for each alternative. c] If Alternative 1 is chosen over Alternative 2, what is the probability that this decision is correct Hints: -do not forget to calculate income taxes and disposal tax effects -for ease of calculations assume that operating losses can be carried only to the next financial year to offset taxable income. For example, losses in Year 1 can reduce the taxable income of year 2 only. -You can use spreadsheet applications if you communicate your solution in a way which enables the teaching assistant to independently replicate your final answer. You can show sample calculations as a way to communicate with the teaching assistant. -Please assume that the given MARR is market interest rate and all dollars are current.