Question: 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?