NYPD Traffic Enforcement is going to invest in a license plate reading technolog
ID: 1200322 • Letter: N
Question
NYPD Traffic Enforcement is going to invest in a license plate reading technology for street cleaning vehicles for $1.750.000. The technology will reduce significantly the amount of time that NYPD officers spend issuing tickets. The technology will last for 5 years, however, there is some uncertainty in the size of the savings and maintenance costs. Assume a MARR of 10%; the possible outcomes for revenue and costs are given below. Initial Cost $1,750,000 p(probability) 0.33 0.40 0.27 Annual Revenue $800,000 $900,000 $1,000,000 Annual Costs $55,00 $60,000 $65,000 Determine the NPW of the machine.Explanation / Answer
Expected annual revenue ($) = 0.33 x 800,000 + 0.4 x 900,000 + 0.27 x 1,000,000
= 264,000 + 360,000 + 270,000
= 894,000
Expected annual cost ($) = 0.33 x 55,000 + 0.4 x 60,000 + 0.27 x 65,000
= 18,150 + 24,000 + 17,550
= 59,700
Expected net annual benefit = $(894,000 - 59,700) = $834,300
So,
NPW ($) = - 1,750,000 + 834,300 x PVIFA(10%, 5)
= - 1,750,000 + 834,300 x 3.7908 (From PVIFA table)
= - 1,750,000 + 3,162,664
= 1,412,664
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.