What is the expected value of the first cost and savings

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An engineering firm is evaluating an energy efficiency project. If the weather is good in the spring, the first cost will be $2600K, if the weather is poor the first cost is estimated at $3000K. In the past the probability of good/bad weather has been 50/50. There is a 40% probability that the annual benefits will be $700K per year, 50% the benefits will be $500K, and 10% that the benefits will be $400K. The company evaluates projects using a 12% rate. The project life is expected to be 10 years.

What is the expected value of the first cost and savings? What is the expected present worth of the project?

Reference no: EM131336509

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