Question

Q6. [20 marks] The estimated annual cash flows of an investment project along with associated probabilities are given below. Determine the expected equivalent worth of this cash flow series at an interest rate of 12% per year (If your student ID number is even, use the FW method. Otherwise, use the PW method). EOY 0 Probability = 0.45 -$10,000 $4,200 $3,250 $6,000 Probability = 0.25 -$20,000 $3,500 $3,500 $5,000 Probability = 0.3 -$12,000 $3,100 $3,100 $3,100 2-6 7

Answer 1

Answer:-

Given that:-

i=12%

Expected PW=0.45*PW1+0.25*PW2+0.3*PW3
PW3 = -12000+3100/1.12+3100/1.122+--3100/1.12€ +3100/1.12" - 12000 + 14147.623 = -2147.623

Expected $PW=0.45*PW_{1}+0.25*PW_{2}+0.3*PW_{3}$ =0.45(6923.96)+0.25(-3348.33)+0.3(-2147.623)

=3115.782-837.0825-536.90575

=1741.79375.