4/ You are proposing a new project that involves buying a new grinding machine. You are confident in your estimates of costs and returns but are concerned that the salvage value of the machine at the end of 15 years is very uncertain. The manufacturer suggests a salvage value of $2000, based on their past experience. Your own risk assessment suggests that there is only a 30% chance that you will get the entire $2000. There is also a 15% chance that the machine will be obsolete before the end and have no scrap value. What number will you use as the salvage value in your cashflow?

B/ You are managing a new project that involves setting up a production line for a new product. You need to have a new building built, fill it with production equipment, and stock raw materials to begin production. Your boss has asked you to reduce unsystemic risks in the projected cashflow wherever possible. What are some of the things you could do to reduce these risks?