Profitability of the project.

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Chapter 11, Problem 39FE

To determine

Profitability of the project.

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10) a) What are the probability distributions for the annual benefit and life for the following project? The annual benefit's most likely value is $7000 with a probability of 60%. There is a 30% probability that it will be $4000, and the highest value that is likely $9,000. A life of 6 years is twice as likely as a life of 9 years. b) The project has a first cost of $25,000. The firm uses an interest rate of 8%. Assume that the probability distributions for annual benefit and life are unrelated or statistically independent. Calculate the probability distribution for the PW c) The first cost of the project is $25,000. Use the expected values for annual benefits and life to estimate the present worth. Use an interest rate of 8%. d) Use the probability distribution function of the PW to calculate the EV(PW). Does this indicate an attractive project? F) Using the probability distribution for the PW, calculate the PW's standard deviation.