Ms. Lee Ding is considering whether the following capitol project should be undertaken. Its life is 6 years; it has a 6% salvage value; and her firm uses a 12% MARR.
Initial Cost P* Annual Net Revenue P*
$250,000 0.4 $ 75,000 0.2
300,000 80,000
350,000 0.2 90,000 0.2
400,000 .05 100,000 0.1
500,000 .05 115,000 0.1
*Probability
a) What is the probability of it costing $300,000?
b) What is the probability of the net revenue being $80,000?
c) What is the expected value of the project?
d) Should she do it?