A construction project has a cost of $650,000. There is a 10 percent chance that the costs will increase by $220,000. There is a 20 percent chance that a delay penalty of $39,000 will be applied. There is a 12 percent chance that the project will win a $30,000 reward for finishing ahead of schedule. Calculate the following: a. calculates the contingency reserve b. What is the expected value of the project? c. What is the best-case scenario and its value? d. What is the worst-case scenario and its value?
A construction project has a cost of $650,000. There is a 10 percent chance that the costs will increase by $220,000. There is a 20 percent chance that a delay penalty of $39,000 will be applied. There is a 12 percent chance that the project will win a $30,000 reward for finishing ahead of schedule. Calculate the following: a. calculates the contingency reserve b. What is the expected value of the project? c. What is the best-case scenario and its value? d. What is the worst-case scenario and its value?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:A construction project has a cost of $650,000. There is a 10 percent chance that the costs will increase by $220,000.
There is a 20 percent chance that a delay penalty of $39,000 will be applied. There is a 12 percent chance that the
project will win a $30,000 reward for finishing ahead of schedule.
Calculate the following:
a. calculates the contingency reserve
b. What is the expected value of the project?
c. What is the best-case scenario and its value?
d. What is the worst-case scenario and its value?
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