A project under consideration is expected to have an 5-7 year projected life (eq

Question

A project under consideration is expected to have an 5-7 year projected life (equal probabilities for 5, 6, and 7 years). The initial investment for the project is estimated to be normally distributed with a mean of $20,000 and a standard deviation of $500. The salvage value at the end of the project life is estimated at 10% of the initial investment. The annual revenue estimates are more certain and estimated at $3,000 for each year of the project life. The MARR is 12%.   Using Excel, simulate 100 iterations to determine the expected value (7.5 points) and standard deviation (7.5 points) of the present worth. Clearly identify both in your Excel spreadsheet. Is the expected present worth of this project positive or negative, and would you recommend investing in this project

Explanation / Answer

here mean= $20000

Standard deviation = $500

by using the command ## NORMINV(RAND(),G$3,G$4) we can draw 100 random sample

The expected value is

E(x) = $20013.82

Standard deviation = $530.74

the expected values of present worth of this project is positive, therefore it is recommended to invest in this project.

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