EBGN321 - Engineering Econ

Colorado School of Mines is currently using the local energy provider to provide electricity to Engineering Hall. It has been proposed by a Senior Design Team to make Engineering Hall a model of green energy on campus by installing solar panels with Tesla batteries and moving it off the grid. The below escalated dollar cash flows represent the capital investment and incremental savings associated with upgrading to solar. Yourjob is to risk adjust the cash ow model to incorporate uncertainty associated with the investment. It is anticipated that 70% of the time you receive the stated cash ows, 20% of the time you only save $35,000 each year in years 1-10, and 10% of the time you only receive $25,000 in savings in years 1-10. CSM requires an i*=10% and Ination is anticipated to be 3.245% each year. Should the project be accepted? Finally, would your economic decision change if the probabilities were 60%/30%/10% for the $45,000/ $35,000/ $25,000 respectively? A) Base Case -250,000 45,000 45,000 45,000 45,000 45,000 45,000 45,000 45,W0 45,000 45,000 0 1 2 3 4 5 6 7 8 9 10