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Problem 2: You are considering an investment in a new excavator for your construction business; however, the initial costs and annual net revenues are uncertain
Problem 2: You are considering an investment in a new excavator for your construction business; however, the initial costs and annual net revenues are uncertain for the foreseeable future. Based on your research and data analysis, you have determined the probability distributions for Annual Net Revenue and Initial Cost of a new excavator are represented in the following table. MARR = 8%. Annual Net Revenue A Probability (A) P(A) 0.2 0.3 0.4 0.1 $75,000 $80,000 $85,000 $90,000 Probability (IC) p(IC) 0.2 0.2 0.4 0.2 Initial Cost (IC) $400,000 -$450,000 -$500,000 -$550,000 Find: The probability that the investment will have a Net Present Value (or PW) >0 (i.e. the investment will be profitable) after 10 years of service. Assume the excavator has no Salvage Value after 10 years of service. Explain your results
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