Summary: XYZ is concerned about the plant’s present production capability. The Vice President, Katherine Rally is contemplating three alternatives:
1) Full automation;
2) Semi-automatic; and
3) Doing nothing.
She identified Capital investment, Annual Revenues, Useful life, and Salvage Value of the plants as random variables and noted down their respective probability distributions. The case requires developing a simulation of 50 sample points of Average Worth (AW) at the MARR of 20% and selects the most suitable alternative.
Question-a: I used Excel Random Number Generation (RNG) function to generate 50 sample values for each random variables: Capital investment, Annual Revenues, ...view middle of the document...
Following are the simulation results under various sample sizes:
We can see that the AW value under the both alternatives are very close, however, the value of standard deviation is quite low under the alternative-B thus confirming that our results are trustworthy. The results for various sample pints are shown in Appendix-A as well.
Question-c: For the statistically validation, a hypothesis test was conducted to compare two samples. The mean value of AW under alternative-A and alternative-B was tested making use of t-test. The t-test statistic was calculated using the following formula:
Our hypotheses were as follows:
Null hypothesis: H 0: μ 1 = μ 2
Alternative hypothesis: H a: μ 1 > μ 2
Sample mean value of AW under alternative-A = $54,736
Sample mean value of AW under alternative –B= $56,491
Sample Standard deviation of AW under alternative-A= $27,420
Sample Standard deviation of AW under alternative-B= $7248
Sample size under alternative-A= 100
Sample size under...