10- 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 5 losses. The optimistic, most likely, and pessimistic projections for annual savings are $25,000, $20,000, and $13,000. 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?
10- 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 5 losses. The optimistic, most likely, and pessimistic projections for annual savings are $25,000, $20,000, and $13,000. 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Use beta distribution when using the range of estimates to compute the mean annual saving
Transcribed Image Text: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 $25,000, $20,000, and $13,000. 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?
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