10-31 An energy efficiency project has a first cost ofG$400,000, a life of 10 years, and no salvage value.Assume that the interest rate is 10%. The most likelyvalue for annual savings is $50,000. The optimisticvalue for annual savings is $80,000 with a probabil-ity of 0.2. The pessimistic value is $40,000 with aprobability of 0.25.(a) What is the expected annual savings and theexpected 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?

Part (a):Expected Annual Savings: A probability of saving each value is then obtained and each value…

Answered: 10-31 An energy efficiency project has…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 15PROB

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