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Spring 2024 An energy efficiency project has a first cost of $400,000, a life of 10 years, and no salvage value. Assume that the interest rate is 10%. The most likely value for annual savings is $50,000. The optimistic value for annual savings is $80,000 with a probability of 0.2. The pessimistic value is $40,000 with a probability of 0.25. a. What is the expected annual savings and the expected PW? b. Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?

Spring 2024 An energy efficiency project has a first cost of $400,000, a life of 10 years, and no salvage value. Assume that the interest rate is 10%. The most likely value for annual savings is $50,000. The optimistic value for annual savings is $80,000 with a probability of 0.2. The pessimistic value is $40,000 with a probability of 0.25. a. What is the expected annual savings and the expected PW? b. Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter16: The Markets For Labor, Capital, And Land
Section: Chapter Questions
Problem 12P
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Spring 2024 An energy efficiency project has a first cost of $400,000, a life of 10 years, and no salvage value. Assume that the interest rate is 10%. The most likely value for annual savings is $50,000. The optimistic value for annual savings is $80,000 with a probability of 0.2. The pessimistic value is $40,000 with a probability of 0.25. a. What is the expected annual savings and the expected PW? b. Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?
Transcribed Image Text:Spring 2024 An energy efficiency project has a first cost of $400,000, a life of 10 years, and no salvage value. Assume that the interest rate is 10%. The most likely value for annual savings is $50,000. The optimistic value for annual savings is $80,000 with a probability of 0.2. The pessimistic value is $40,000 with a probability of 0.25. a. What is the expected annual savings and the expected PW? b. Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?
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