G Other issues 1 Sensitivity tests could be run on the discount rate or other

G other issues 1 sensitivity tests could be run on

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G. Other issues: 1) Sensitivity tests could be run on the discount rate or other variables. Note, a higher discount rate will disadvantage the new equipment alternative versus the overhaul option, and vice-versa. The cash flows are spread over a longer time period for the new equipment option which will lower their present values more dramatically with a discount rate increase. 2) We have made no allowances for possible labor or maintenance wage increases as a function of time. Do labor contracts dictate automatic pay increases, or are labor negotiations on the horizon? If these contractual cost increases can be predicted, they should be included in the analysis. If these cost increases are a factor, the new equipment option will be even more attractive since this decision is less labor intensive. 3) Along the same lines as 2), we have not included unexpected cost increases in materials used in maintenance. Unexpected increases in inflation also favor the new equipment over the overhaul alternative since the new machinery option is less maintenance intensive. 6
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