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.)

4. (10 points) 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 center Revoluti Incremental Revolutionary 0.75 0.25 $9K $3K Probability Salvage S Assume that the progress in technology and the level of throughput volume are independent, and MARR is 10%. a) Write the probability distribution of EAW, then compute the expected EAW, the standard deviation of EAW and the probability the there will be a loss in this investment. You may first write down the following formula: EAW(10%) =.. Then fill in the following table: (Note: (A/P, 10%, 8) = 0.1874; (A/F, 10%, 8) = 0.0874) Combination: AS (SK) S($K) Prob 0.225 EAW ($) 19,543 Prob*EAW 4,397 Prob*EAW2 85,304,473 30 - 0.15 0.075 9,018 -457 -982 1353 -34 -25 12,199,190 15,691 24,098 10 3 0.025 Sum: E(EAW) = SD(EAW) = 4. (10 points) 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 center Revoluti Incremental Revolutionary 0.75 0.25 $9K $3K Probability Salvage S Assume that the progress in technology and the level of throughput volume are independent, and MARR is 10%. a) Write the probability distribution of EAW, then compute the expected EAW, the standard deviation of EAW and the probability the there will be a loss in this investment. You may first write down the following formula: EAW(10%) =.. Then fill in the following table: (Note: (A/P, 10%, 8) = 0.1874; (A/F, 10%, 8) = 0.0874) Combination: AS (SK) S($K) Prob 0.225 EAW ($) 19,543 Prob*EAW 4,397 Prob*EAW2 85,304,473 30 - 0.15 0.075 9,018 -457 -982 1353 -34 -25 12,199,190 15,691 24,098 10 3 0.025 Sum: E(EAW) = SD(EAW) =