10- A new engineer is evaluating whether to use a higher-voltage transmission line. It will cost $250,000 more initially, but it will reduce transmission 5 losses. The optimistic, most likely, and pessimistic projections for annual savings are $25,000, $20,000, and $13,000. The interest rate is 6%, and the transmission line should have a life of 30 years. (a) What is the present worth for each estimated value? (b) Use the range of estimates to compute the mean annual savings, and then determine the present worth. (c) Does the answer to (b) match the present worth for the most likely value? Why or why not?

10- A new engineer is evaluating whether to use a higher-voltage transmission line. It will cost $250,000 more initially, but it will reduce transmission 5 losses. The optimistic, most likely, and pessimistic projections for annual savings are $25,000, $20,000, and $13,000. The interest rate is 6%, and the transmission line should have a life of 30 years. (a) What is the present worth for each estimated value? (b) Use the range of estimates to compute the mean annual savings, and then determine the present worth. (c) Does the answer to (b) match the present worth for the most likely value? Why or why not?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 15PROB

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