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TABLE 11-1 Optimistic, Most Likely, and Pessimistic Estimates and AWs for Proposed Ultrasound Device (Example 11-7) Estimation Condition Optimistic (O) Most Likely (ML) Pessimistic (P) Capital investment, I $150,000 $150,000 $150,000 Useful life, N 18 years 10 years 8 years Market value, MV Annual revenues, R $110,000 $70,000 $50,000 Annual expenses, E AW (8%): 20,000 43,000 57,000 +$73,995 +$4,650 -$33,100

TABLE 11-1 Optimistic, Most Likely, and Pessimistic Estimates and AWs for Proposed Ultrasound Device (Example 11-7) Estimation Condition Optimistic (O) Most Likely (ML) Pessimistic (P) Capital investment, I $150,000 $150,000 $150,000 Useful life, N 18 years 10 years 8 years Market value, MV Annual revenues, R $110,000 $70,000 $50,000 Annual expenses, E AW (8%): 20,000 43,000 57,000 +$73,995 +$4,650 -$33,100

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Consider a proposed ultrasound inspection device for which the optimistic, and most likely, pessimistic estimates are given in Table 11-1. The MARR is 8% per year. Also shown at the end of Table  are the AWs for all three estimation conditions. Based on this information, analyze the combined effects of uncertainty in the factors on the AW value.

TABLE 11-1 Optimistic, Most Likely, and Pessimistic Estimates and AWs for Proposed Ultrasound Device (Example 11-7) Estimation Condition Optimistic (O) Most Likely (ML) Pessimistic (P) Capital investment, I $150,000 $150,000 $150,000 Useful life, N 18 years 10 years 8 years Market value, MV Annual revenues, R $110,000 $70,000 $50,000 Annual expenses, E AW (8%): 20,000 43,000 57,000 +$73,995 +$4,650 -$33,100
Transcribed Image Text:TABLE 11-1 Optimistic, Most Likely, and Pessimistic Estimates and AWs for Proposed Ultrasound Device (Example 11-7) Estimation Condition Optimistic (O) Most Likely (ML) Pessimistic (P) Capital investment, I $150,000 $150,000 $150,000 Useful life, N 18 years 10 years 8 years Market value, MV Annual revenues, R $110,000 $70,000 $50,000 Annual expenses, E AW (8%): 20,000 43,000 57,000 +$73,995 +$4,650 -$33,100
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