Should the project in Problem 10-15 be undertaken if the firm uses an expected value of present worth to evaluate engineering projects?
(a) Compute the PW for each combination of first cost and revenue and the corresponding expected worth.
(b) What are the expected first cost, expected net revenue, and corresponding present worth of the expected values?
(c ) Do the answers for (a) and (b) match? Why or why not?
A new product's sales and profits are uncertain. The marketing department has predicted that sales might be as high as 10,000 units per year with a probability of 10%. The most likely value is 7000 units annually. The pessimistic value is estimated to be 5000 units annually with a probability of 20%. Manufacturing and marketing together have estimated the most likely unit profit to be $32. The pessimistic value of $24 has a probability of 0.3, and the optimistic value of $38 has a probability of 0.2. Construct the probability distributions for sales and unit profits.