A machine has the first cost of $60K. The net annual savings (which depends on the volume of throughput) and the salvage value at the end of its 8-year economic life (which depends on the progress in related technology) are given below: Volume of throughput High Medium Low Probability 0.3 0.6 0.1 Annual Savings AS $30K $20K $10K Rate of technological progress Incremental Revolutionary Probability 0.75 0.25 Salvage S $9K $3K Assume that the progress in technology and the level of throughput volume are independent, and MARR is 10%. a) Write the probability distribution of EAW, then compute the expected EAW, the standard deviation of EAW and the probability the there will be a loss in this investment. You may first write down the following formula: EAW(10%) =................................................................................ Then fill in the following table: (Note: (A/P, 10%, 8) = 0.1874; (A/F, 10%, 8) = 0.0874)

Combination: AS ($K) S($K) Prob EAW ($) Prob*EAW Prob*EAW 2 30 9 0.225 19,543 4,397 85,304,473 ____ ____ ____ _____ _______ ________ ____ ____ ____ _____ _______ ________ 20 3 0.15 9,018 1353 12,199,190 10 9 0.075 -457 -34 15,691 10 3 0.025 -982 -25 24,098 Sum: _______ ________

E(EAW) =_________________ SD(EAW) =_________________ b) Is this a good investment based on your own return/risk trade-off? Why or why not? If the distribution of PW is approximately normal, what is the probability of loss? (Table of Standard Normal distribution is given.)