Problem
An energy efficiency project has a first cost of $300,000, a life of 10 years, and no salvage value. Assume that the interest rate is 9%. The most likely value for annual savings is $60,000. The optimistic value for annual savings is $80,000 with a probability of 0.2. The pessimistic value is $40,000 with a probability of 0.3.
(a) What is the expected annual savings and the expected PW?
(b) Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?
(c) Do the answers for the expected PW match? 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.