Two mutually exclusive investment alternatives are being considered. Alternative A requires an initial investment of $20,000 in a machine. Annual

Question:

Two mutually exclusive investment alternatives are being considered. Alternative A requires an initial investment of $20,000 in a machine. Annual operating and maintenance costs are anticipated to be normally distributed, with a mean of $8,000 and a standard deviation of $600. The at the end of its life (10 years) is anticipated to be normally distributed, with a mean of $2,000 and a standard deviation of $900. Alternative B requires end-of-year annual expenditure over the ten-year planning horizon, with the annual expenditure being normally distributed with a mean of $10,500 and a standard deviation of $1,200. Using a of 12% per year, what is the probability that alternative A is the most economic alternative (i.e., the least costly)?
Salvage Value
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