Answered: Return on Investment Probability…

Return on Investment Probability Project A Project B 0.10 -20% -35% 0.20 -10% 0.25 10% 15% 0.30 15% 25% 0.10 20% 40% 0.05 40% 50%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please show work on Excel. A new engineer is evaluating whether to use a larger diameter pipe for a water line. The pipe will cost $327,089 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 most likely to be 7%, but is equally likely to be 6% or 8%, and the water line should have a life of 40 years. Find the expected annual savings and the expected interest rate. Determine the Expected PW based on these. Hint: Based on the different saving and their probabilities, find the expected value of savings. Then find the expected value of the interest rate (each option has equal probability). Then find the PW using these values.
A distribution company purchases two parts from the same supplier. When the company places an order there is a common procurement cost of $1750, in addition to $300 (Product I) and $100 (Product II) of individual procurement costs. Product I has a weekly demand of 500 units with a standard deviation of 50 units, Product I values $200, target CSL is 94%, and lead time is one month. Product II has a weekly demand of 60 units with a standard deviation of 15 units, each Product II values $1200, target CSL is 99%, and lead time is 3 months. The company uses 24% as the inventory holding rate per year (1 year is 52 weeks or 12 months) • Assuming each product is individually ordered using periodic review policy, compute T*, M*, and TC of Product I and II individually. . Assuming these products are jointly replenished, what will be the T*, M₁, M₁, TC? What is the amount of savings when products are jointly ordered compared to individual ordering?
The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost($) 10 $ 11 12 Probability 0.25 0.45 0.30 Labor Cost ($) 20 22 24 25 Probability 0.10 0.25 0.35 0.30 Transportation Cost ($) 3 5 (a) Compute profit per unit for the base-case, worst-case, and best-case scenarios. Base Case using most likely costs Profit = $ /unit Worst Case Profit = $ /unit Best Case Profit = $ /unit Probability 0.75 0.25 (b) Construct a simulation model to estimate the mean profit per unit. (Use at least 1,000 trials.) (c) Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? Simulation will provide ---Select--- of the profit per unit values which can then be used to find ---Select--- ◆ of an unacceptably low…
You are considering an investment project with the financial information provided below. Suppose the company is most concerned about the impact of its price estimate on the project's rate of return. How would you address this concern? The break-even value of unit price is ?
Assume a pool of 115 people in an insurance pool (a group of people insured through community rating). It is estimated that a small number in the pool will have significant pre- existing conditions as indicated in the table. Based on the age of these 115 people, the insurance company estimates the following distribution of health care claims (which includes necessary profit and administrative costs of the insurance company). Number of Insured Antidipated Heath Costs/Year/Person $1,400 $1,500 $1,600 $1,700 $1,800 $1,900 $2,000 $2,100 $2,200 $2.300 $2,400 $2,500 $2,700 $2,000 $2,900 $3,000 $3,100 $3.200 $3.300 $4,000 57,00 $10,000 Everyone joins the poal ad pays the necessary premum in the first year. The clams experience of the customers is faund to be generaly consstent with expeclations of the insurance company. A) What would be the premium In the third year if there is no inflation, based on the company's oxperience from the past year? B) If those customers who have anticipated…
a. A project costs $10 up front and has net benefits of $15 with probability 0.8 at the end of the second year and otherwise returns nothing. The discount rate is 0.035. What is the NPV? b. At what probability of returning $15 after year 2 would the ENPV be 0?
The proposed projects have the potential uniform annual benefits and associated probability at occurrence shown below. Which project is more desirable based on these Probability data? EUAB $1,000 2,000 3,000 4,000 Project B Probability EUAB Probability 0.10 $1,500 0.20 0.30 2,500 0.40 0.40 3,500 0.30 0.20 4,500 0.10 Project A