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EC-15-bigproject1920

# EC-15-bigproject1920 - Chapters 13-15 Multiple Goal...

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Chapters 13-15 Net value and marginal analysis Decision rules Example Present value analysis Reconciling present and future cash flows Discounting Figures of merit Weighted sum Delivered system capability Multiple Goal Decision Analysis I

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Marginal Analysis: Definitions X – Activity level of an alternative C(X) – Cost of alternative TV(X) – Total value of alternative (in same units as cost) NV(X) – Net value of alternative NV(X) = TV(X) – C(X) MNV(X) – Marginal net value MNV(X) = = - dx d(NV) dC dx d(TV) dx
C NV max X max X 2 Activity level x (a) TV and C Cost and Total Value TV X 1

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(b) MNV = d(TV)/dx – dC/dx Marginal Net Value X max X Activity level
X 1 X max X 2 Over- investment (b) NV = TV - C X NV max Net Value vs. Activity Level Investment Profitable

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Marginal Net Value Decision Rule In the “profitable” segment If MNV > 0, Increase activity level If MNV < 0, Decrease activity level If MNV = 0, Activity level is optimal MNV = d(TV) / dx – dC/dx For Option B, with V T = value of each TR/sec, C(N) = 1007 + 20N; dC / dN = 20 TV(N) = V T (880N – 40N 2 ); d(TV) / dN = V T (880 –80N) 20 = V T (880 – 80N max ) N max = (880 V T – 20) / 80 V T = 11 – 1/(4V T ) ≤ 2245
Optimal Number of Processors vs. Transaction Value 0.1 0.2 0.3 0.4 2 4 6 8 10 N max V T , \$K N max = 11 – 1 /(4 V T )

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Assuming use of composite option, we will acquire 5 processors/system and run option A for 2 years Which acquisition option should we choose: -A1: Rent processors for 2 years at \$2400/Mo. -A2:
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EC-15-bigproject1920 - Chapters 13-15 Multiple Goal...

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