A construction project has a cost of $650,000. There is a 10 percent chance that the costs will increase by $220,000. There is a 20 percent chance that a delay penalty of $39,000 will be applied. There is a 12 percent chance that the project will win a $30,000 reward for finishing ahead of schedule. Calculate the following: a. calculates the contingency reserve b. What is the expected value of the project? c. What is the best-case scenario and its value? d. What is the worst-case scenario and its value?

A construction project has a cost of $650,000. There is a 10 percent chance that the costs will increase by $220,000. There is a 20 percent chance that a delay penalty of $39,000 will be applied. There is a 12 percent chance that the project will win a $30,000 reward for finishing ahead of schedule. Calculate the following: a. calculates the contingency reserve b. What is the expected value of the project? c. What is the best-case scenario and its value? d. What is the worst-case scenario and its value?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 2PROB

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