A factory’s power bill is $80,000 per year. The first cost of a small geothermal
ID: 3043918 • Letter: A
Question
A factory’s power bill is $80,000 per year. The first cost of a small geothermal power plant is normally distributed with a mean of $200,000 and a standard deviation of $50,000. The power plant has no salvage value. The interest rate for evaluation is 6%. The project’s life is from a discrete uniform distribution that takes on the values 3, 4, 5, 6, and 7 (the life is relatively short due to corrosion). The annual operating cost is expected to be around $15,000 per year. Using Excel’s RAND() function, simulate 25 iterations. What are the expected value and standard deviation of the present worth?
Explanation / Answer
Using Excel’s RAND() function, simulated 25 iterations are
1
0.772662
2
0.157237
3
0.302622
4
0.450614
5
0.149585
6
0.338689
7
0.394815
8
0.8761
9
0.523354
10
0.817087
11
0.312958
12
0.789227
13
0.544961
14
0.748309
15
0.148688
16
0.554748
17
0.285944
18
0.478734
19
0.132819
20
0.126846
21
0.967612
22
0.450345
23
0.797586
24
0.351478
25
0.877334
For calculating mean use the Excel function
AVERAGE()
mean= 0.494014
For calculating SD use the Excel function
STDEV()
SD= 0.263662
1
0.772662
2
0.157237
3
0.302622
4
0.450614
5
0.149585
6
0.338689
7
0.394815
8
0.8761
9
0.523354
10
0.817087
11
0.312958
12
0.789227
13
0.544961
14
0.748309
15
0.148688
16
0.554748
17
0.285944
18
0.478734
19
0.132819
20
0.126846
21
0.967612
22
0.450345
23
0.797586
24
0.351478
25
0.877334
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