
(a)
The expected value of equivalent uniform annual cost.

Answer to Problem 27P
The expected value of equivalent uniform annual cost is
Explanation of Solution
Given:
Optimistic probability is
From question number
The values are:
Cases | EUAC |
Pessimistic |
|
Most likely |
|
Optimistic |
Concept used:
The expected value of equivalent uniform annual cost can be calculated by the summation of the product of equivalent uniform cost and their probabilities in optimistic, most likely and in pessimistic case.
Calculation:
Let expected value in optimistic case be
Calculate the expected value in optimistic case
Here, probability is
Substitute
Let expected value in most likely case be
Calculate the expected value in most likely case
Here, probability is
Substitute,
Let expected value in pessimistic case be
Calculate the expected value in pessimistic case
Here, probability is
Substitute
Calculate the expected value of equivalent uniform of annual cost.
Let the expected value of equivalent uniform of annual cost denoted by
Substitute
Conclusion:
Thus, the expected value of equivalent uniform of annual cost is
(b)
The expected value for number of miles and their corresponding annual cost.

Answer to Problem 27P
The expected value for number of miles are
The corresponding annual cost is
Explanation of Solution
Given:
Fuel cost is
Cost for oil, repair, tires is
Initial investment is
Drop in cent per mile is
Interest rate is
Number of years is
Concept used:
The expected of number of miles is determined by the summation of the product of number of miles in different situations and their respective probabilities.
Calculation:
Calculate the expected number of miles in optimistic case
Here, probability is
Substitute,
Let expected number of miles in most likely case be
Calculate the expected number of miles in most likely case.
Substitute,
Let expected number of years in pessimistic case be
Calculate the expected number of miles in pessimistic case.
Substitute,
Calculate the expected number of miles
Substitute,
The annual cost is the sum of fuel cost and oil, repair and tires cost per year.
Calculate the annual cost
Here, fuel cost is
Substitute,
Calculate the salvage value per year
Here, expected number of miles per year is
Substitute,
The total annual cost is the sum of salvage cost and annual cost.
Calculate the total annual cost
Substitute,
Calculate the equivalent annual cost.
Here, interest rate is
Substitute,
Conclusion:
Thus, the expected value for number of miles are
The corresponding annual cost is
(c)
If the answers in part

Answer to Problem 27P
Answer in part
Explanation of Solution
Answer in part
This is because in part
In part
The same equation is obtained in both the parts. Therefore, answers are approximately same.
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