Dr. Li Meng

Case background

The Mt Gambier Forestry Conference plans to invest in a smart fire detection system to replace the human fire tower reporting method which has been used for over 30 years. The smart system has an expected annual benefit of $900,000 with a probability of 20%, and $100,000 with a probability of 70%. The smart system has an expected life of 5 years and a twice likely life of 7 years.

1.Please calculate the probability of a benefit of $1,500,000 and prepare a chart of probability for benefits of $100,000, $900,000 and $1,500,000 for the smart system

2.If the Mt Gambier Forestry Conference has an initial cost of $2,000,000, and they use an interest rate of 9%. Please calculate

3.The food industry strategies a new project of using recyclable plastic container, please calculate the marginal cost of keeping this asset over its useful life of 7 years.

4.Explain the meaning of the marginal cost of the recyclable container.