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A new engineer is evaluating whether to use a larger-diameter pipe for a water line. It will cost $350,000 more initially, but it 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 6- 8%, and the water line should have a life of 40 years.

(a) What is the PW for each estimated value? What is the expected PW?

(b) Compute the expected annual savings and expected PW.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92637994

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