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cash flows over the eight-year horizon are computed and the NPV found.

A number of factors may be analysed in the equipment selection decision process such as sales volume, revenue, idle time, and so on. Here we present, as examples, only two. In Figure 4 the cumulative probability distribution functions of the NPVs of the two alternatives are graphed and in Figure 5 the same is done for the equipment utilization.

As can be seen in Figure 4, the NPV distribution for alternative 1 falls to the left of that for alternative 2. Also, there is a considerable area of overlap between the two distributions, from 10,200 to 12,400. It is clear from the figure that alternative 2 is preferred. That is, the cumulative probability of achieving less than any particular NPV is always greater for alternative 1 than, alternative 2. Thus, alternative 2 dominates alternative 1 by "first order stochastic dominance" (Whitmore and Findlay 1978)..

However, equipment selection should not be viewed as a single criterion decision and other factors should also be considered. For example, Figure 5 shows that the distribution of machine utilization is also less for alternative 1 than alternative 2, thereby offering extra capacity with alternative 2 for possible future market growth. Clearly, other such factors may also be considered critical in any particular technology decision and their distributions should also be factored into the analysis.

Table 3 Anticipated Annual Sales Volumes

Year

Table 3 Anticipated Annual Sales Volumes

Year

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Project Management Made Easy

Project Management Made Easy

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