Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made in year 3. Cash Flow, $1000 Cash Flow, $1000 Cash Flow, $1000 Outcome (Year 4) 4 $50 $40 $30 $30 $190 $-30 Cash Flow, (Year 3) 3 $-260,000 Investment, Year 3 Probability (Year 5) (Year 6) High (X) Low (X) High (Y) Low (Y) High (Z) Low (Z) The present worth of X is $ The present worth of Y is $ . The present worth of Z is $ . $50 $30 $40 $30 $170 $-30 $50 $20 $50 $30 $150 $-30 0.72 0.28 0.45 0.55 0.7 0.3 $-52,000 $-250,000
Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3, and the estimated cash flows for years 4 through 6, determine which decision should be made in year 3. Cash Flow, $1000 Cash Flow, $1000 Cash Flow, $1000 Outcome (Year 4) 4 $50 $40 $30 $30 $190 $-30 Cash Flow, (Year 3) 3 $-260,000 Investment, Year 3 Probability (Year 5) (Year 6) High (X) Low (X) High (Y) Low (Y) High (Z) Low (Z) The present worth of X is $ The present worth of Y is $ . The present worth of Z is $ . $50 $30 $40 $30 $170 $-30 $50 $20 $50 $30 $150 $-30 0.72 0.28 0.45 0.55 0.7 0.3 $-52,000 $-250,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Decision D6, which has three possible choices (X, Y, or Z), must be made in year 3 of a 6-year study
period in order to maximize E(PW). Using an MARR of 18% per year, the investment required in year 3,
and the estimated cash flows for years 4 through 6, determine which decision should be made in year
3.
Cash Flow,
(Year 3)
3
$-260,000
Cash Flow, $1000 Cash Flow, $1000 Cash Flow, $1000 Outcome
(Year 4)
4
$50
$40
$30
$30
$190
$-30
Investment,
Year 3
(Year 6)
(Year 5)
Probability
High (X)
Low (X)
High (Y)
Low (Y)
High (Z)
Low (Z)
The present worth of X is $
The present worth of Y is $
The present worth of Z is $ .
$50
$30
$40
$30
$170
$-30
$50
$20
$50
$30
$150
$-30
0.72
0.28
0.45
0.55
0.7
0.3
$-52,000
$-250,000
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