A pork-processing facility is considering installing 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; 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.

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1)

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

Equation that can be used to determine the sensitivity is

213,000 + 3,200(P|A 15%,n) - ((90,000 + 45,000) + 8,500(P|A 15%,n))

Determine which alternative is preferred for lives ranging from 15 to 25 years in 1 year increments