A new engineer is evaluating whether to use a larger diameter pipe for a water line. The pipe will cost $376,183 more initially but will reduce pumping costs. The optimistic, most likely, and pessimistic projections for annual savings are $30,000, $20,000, and $5000, with respective probabilities of 20%, 50%, and 30%. The interest rate is equally likely to be 6% or 8% (use 7% as most likely), and the water line should have a life of 40 years. a) Find the PW for the pessimistic case, the most likely case, and the optimistic case. Then determine the Expected PW based on these. b) Find the expected annual savings and the expected interest rate. Determine the Expected PW based on these.
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A new engineer is evaluating whether to use a larger diameter pipe for a water line. The pipe will cost $376,183 more initially but will reduce pumping costs. The optimistic, most likely, and pessimistic projections for annual savings are $30,000, $20,000, and $5000, with respective probabilities of 20%, 50%, and 30%. The interest rate is equally likely to be 6% or 8% (use 7% as most likely), and the water line should have a life of 40 years.
a) Find the PW for the pessimistic case, the most likely case, and the optimistic case. Then determine the Expected PW based on these.
b) Find the expected annual savings and the expected interest rate. Determine the Expected PW based on these.
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