You are evaluating the risks associated with a construction project. Through careful analysis you have developed a list of the following risks, probabilities those risks will happen, and the costs associated with them if they occur.   25% chance of Snowmaggedon which will delay the project at a cost of $35,000 10% chance of cost of construction materials dropping saving the project $70,000 10% probability a labor strike will occur delaying the schedule with a cost of $40,000 80% chance of new regulations mandated calling for higher inspection standards which will cost an additional $15,000 to mitigate   What is the EMV of this project?

Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
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  1. You are evaluating the risks associated with a construction project. Through careful analysis you have developed a list of the following risks, probabilities those risks will happen, and the costs associated with them if they occur.

 

  • 25% chance of Snowmaggedon which will delay the project at a cost of $35,000
  • 10% chance of cost of construction materials dropping saving the project $70,000
  • 10% probability a labor strike will occur delaying the schedule with a cost of $40,000
  • 80% chance of new regulations mandated calling for higher inspection standards which will cost an additional $15,000 to mitigate

 

What is the EMV of this project?

Expert Solution
Step 1

The EMV of the project is the Expected Money Value of the Project.

This value is given by the sum of each expected earning multiplied by each probability.

Advanced Math homework question answer, step 1, image 1
Step 2

There is a 25% chance of Snowmaggedon which will delay the project at a cost of $35,000.

Advanced Math homework question answer, step 2, image 1
Step 3

The project has a 10% chance of construction materials dropping saving $70,000. So,

Advanced Math homework question answer, step 3, image 1
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