The management of a company is considering replacing a number ofold looms in the mill’s weave room. The looms to be replaced aretwo 220-cm President looms, sixteen 135-cm President looms, andtwenty-two 185-cm Draper X-P2 looms. The company may either replacethe old looms with new ones of the same kind or buy 21 newshutterless Pignone looms. The first alternative requires thepurchase of 40 new President and Draper looms and the scrapping ofthe old looms. The second alternative involves scrapping the 40 oldlooms, relocating 12 Picanol looms, and constructing a concretefloor, plus purchasing the 21 Pignone looms and various relatedequipment. Following are the revenue and expense predictions:

Description	Alternative 1	Alternative 2
Machinery/related equipment	$2,150,000	$900,000
Annual revenues due to the new looms	$2,000,000	$1,500,000
Annual labour cost	$250,000	$300,000
Annual O&M cost	$1,000,000	$700,000
CCA Rate	30%	30%
Project life	8 years	8 years
Salvage value	$100,000	$40,000

The corporate executives feel that various investmentopportunities available for the mill will guarantee a rate ofreturn on investment of at least (MARR) 10%. The mill’s marginaltax rate is 40%. Due to uncertainty, the following variabilities inestimates should be considered: revenues ± 30%, labour cost ± 40%,and annual O&M cost ± 20%. Assume that each of these variablescan independently deviate from its base value.
a] Assuming that uncertain variables change once at a time, use NPWto conduct sensitivity analysis. Ideally, you should plot therelationship between percentage change in a variable and NPW.
b] Now consider that each variable can take only three possibleoutcome within the range of possible outcome: lowest value, basevalue, and highest value. Each outcome can happen with aprobability: 0.15, 0.7, and 0.15, respectively. Considering thedistributions of the three uncertain variables, predict theprobability distribution of NPW for each alternative. Each NPW willhave 27 possible outcome (3x3x3) and you are required to do thatfor each alternative.
c] If Alternative 1 is chosen over Alternative 2, what is theprobability that this decision is correct?
Hints:
-do not forget to calculate income taxes and disposal taxeffects
-You can you spreadsheet applications if you communicate yoursolution in a way which enables the teaching assistant toindependently replicate your final answer. You can show samplecalculations as a way to communicate with the teachingassistant.
-Please assume that the given MARR is market interest rate and alldollars are current.

Note: If not mentioned, [1] the half-year rule applies and [2]all rates are annual.

(could i get an example calculations and explanations as to whythings are like that?)