The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely estimates of several key parameters have been obtained from the local builders and the chamber of commerce. These estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%. Parameter Pessimistic Most likely Optimistic Initial cost $10,500,000 $8,875, 000 $6,000,000 Annual operating $350,000 $ 175,000 $150,000 Annual revenue $1,500,000 2,500,000 $3,500,000 a) Based only on the pessimistic estimates, is the new motel economically attractive? b) Based only on the most likely estimates, is the new motel economically attractive? c) Based only on the optimistic estimates, is the new motel economically attractive? d) Approximating the expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4 times the most likely estimate, based on an expected value analysis, is the new motel economically attractive? 11.02-PR008 WP The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely estimates of several key parameters have been obtained from the local builders and the chamber of commerce. These estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%. Parameter Initial Cost Annual Operating Pessimistic Most Likely Optimistic $10,500,000 $8,875,000 $6,000,000 $350,000 $175,000 $150,000 Annual Revenue $1,500,000 $2,500,000 $3,500,000 a. Based only on the pessimistic estimates, is the new motel economically attractive? b. Based only on the most likely estimates, is the new motel economically attractive? c. Based only on the optimistic estimates, is the new motel economically attractive? d. Approximating the expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4 times the most likely estimate, based on an expected value analysis, is the new motel economically attractive?
The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely estimates of several key parameters have been obtained from the local builders and the chamber of commerce. These estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%. Parameter Pessimistic Most likely Optimistic Initial cost $10,500,000 $8,875, 000 $6,000,000 Annual operating $350,000 $ 175,000 $150,000 Annual revenue $1,500,000 2,500,000 $3,500,000 a) Based only on the pessimistic estimates, is the new motel economically attractive? b) Based only on the most likely estimates, is the new motel economically attractive? c) Based only on the optimistic estimates, is the new motel economically attractive? d) Approximating the expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4 times the most likely estimate, based on an expected value analysis, is the new motel economically attractive? 11.02-PR008 WP The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely estimates of several key parameters have been obtained from the local builders and the chamber of commerce. These estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%. Parameter Initial Cost Annual Operating Pessimistic Most Likely Optimistic $10,500,000 $8,875,000 $6,000,000 $350,000 $175,000 $150,000 Annual Revenue $1,500,000 $2,500,000 $3,500,000 a. Based only on the pessimistic estimates, is the new motel economically attractive? b. Based only on the most likely estimates, is the new motel economically attractive? c. Based only on the optimistic estimates, is the new motel economically attractive? d. Approximating the expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4 times the most likely estimate, based on an expected value analysis, is the new motel economically attractive?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely
estimates of several key parameters have been obtained from the local builders and the chamber of commerce. These
estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%. Parameter
Pessimistic Most likely Optimistic Initial cost $10,500,000 $8,875, 000 $6,000,000 Annual operating $350,000 $
175,000 $150,000 Annual revenue $1,500,000 2,500,000 $3,500,000 a) Based only on the pessimistic estimates, is
the new motel economically attractive? b) Based only on the most likely estimates, is the new motel economically
attractive? c) Based only on the optimistic estimates, is the new motel economically attractive? d) Approximating the
expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4
times the most likely estimate, based on an expected value analysis, is the new motel economically attractive?
11.02-PR008 WP The owners of a discount motel chain are considering building a new motel. Optimistic, pessimistic, and most likely estimates of several key parameters have been obtained from the local
builders and the chamber of commerce. These estimates are shown in the table below. The life of the motel is estimated to be 15 years and MARR is 20%.
Parameter
Initial Cost
Annual Operating
Pessimistic Most Likely Optimistic
$10,500,000 $8,875,000 $6,000,000
$350,000 $175,000 $150,000
Annual Revenue $1,500,000 $2,500,000 $3,500,000
a. Based only on the pessimistic estimates, is the new motel economically attractive?
b. Based only on the most likely estimates, is the new motel economically attractive?
c. Based only on the optimistic estimates, is the new motel economically attractive?
d. Approximating the expected value for each parameter by dividing by 6 the sum of the pessimistic estimate, the optimistic estimate, and 4 times the most likely estimate, based on an expected value analysis, is
the new motel economically attractive?
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