Using the expected value of the net present worth

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Reference no: EM131561001

You are looking at an investment but arc uncertain about Initial Cost. Annual Benefit, and the Number of Years of the Annual Benefit. You estimate High and Low values for each of the three variables. (Cost at $1000 and $1200); (Benefit at $100 and $300); and (Years at 10 or 12.) You believe that for each of the three variables the high or low value is equally likely. You decide to ignore any Salvage Value and you have a MARR of 10%. Using the Expected Value (EV) of the Net Present Worth EV (NPW) with joint probabilities for all combinations of outcomes, is this a worthwhile investment? Would it also be a good investment, if you first determined the Expected Values of each of the three variables and then used these to calculate the NPW?

Reference no: EM131561001

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