Problem
For the data in Problem 10-5, assume that the optimistic probability is 20%, the most likely is 50%, and the pessimistic is 30%.
(a) What is the expected value of the present worth?
(b) Compute the expected value for annual savings, and the corresponding present worth.
(c) Do the answers to (a) and (b) match? Why or why not?
Problem 10-5
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 losses. The optimistic, most likely, and pessimistic projections for annual savings are $20,000, $15,000, and $8,000. 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?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.