9. MKBIC Systems is evaluating four projects A, B, C and D that have risks assoc
ID: 2590066 • Letter: 9
Question
9. MKBIC Systems is evaluating four projects A, B, C and D that have risks associated with the producing benefits. Based on the data given in the table below, which project is the best alternative? Project A EUAW Prob. EUAW Prob. $2,500 0.3$5,000 0.25 $1,800 0.45 $6,500 0.45 $3,200 0.25 $2,000 0.3 Project B 10. A continuous improvement has helped a company to raise savings with associated probabilities shown in the table below. The useful life is 5 years with a probability of0.6 and 3 years with probability of 0.4. i. Determine the joint probability distribution for savings per year and useful life. ii. Determine the expected NPW if an investment of $50,000 is required. No salvage isexpected. Use a MARR of 10% Annual Benefit $14.500 $19,500 Probability 0.25 0.45 0.3 $24,500Explanation / Answer
Answer
To find the best project we will add all the events of prob.
Project EUAW = EUAW * Prob.
Project A EUAW = (2500*0.3) + (1800*0.45) + (3200*0.25)
Project A EUAW = $2,360
Project B EUAW = (-5000*0.25) + (6500*0.45) + (2000*0.3)
Project B EUAW = $2,275
Conclusion
It is recommended to choose Project A as EUAW is the highest in that case
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