Suppose that the following estimates are given for costs.

Pessimistic

Optimistic

Most Likely

Building Cost

3,000,000

1,500,000

2,000,000

Furnishings Cost

1,250,000

500,000

750,000

Annual operating and

maintenance costs

60,000

40,000

50,000

Assume Beta distribution for the costs, that the building and the furnishing costs are incurred at n = 0 and

that the given annual operating and maintenance costs are incurred at n =

1 and 2. Find the mean and the

variance of the net present value at MARR = 10 %. Assume independence among all costs and across

time.

Problem 1. Suppose that the following estimates are given for costs. Pessimistic Optimistic Most Likely 3,000,000 1,250,000 1,500,000 500,000 Building Cost Furnishings Cost Annual operating and maintenance costs 2,000,000 750,000 60,000 40,000 50,000 Assume Beta distribution for the costs, that the building and the furnishing costs are incurred at n= 0 and that the given annual operating and maintenance costs are incurred at n= 1 and 2. Find the mean and the variance of the net present value at MARR = 10 %. Assume independence among all costs and across time. Problem 2. Consider the following three projects with the means and the standard deviations of their NPV's. Assuming normal distribution and an aspiration level of $ 10,000, select the best project. Project E(NPV) 20,000 10,000 8,000 S.D.(NPV) 5,000 2,000 1,500 Problem 1. Suppose that the following estimates are given for costs. Pessimistic Optimistic Most Likely 3,000,000 1,250,000 1,500,000 500,000 Building Cost Furnishings Cost Annual operating and maintenance costs 2,000,000 750,000 60,000 40,000 50,000 Assume Beta distribution for the costs, that the building and the furnishing costs are incurred at n= 0 and that the given annual operating and maintenance costs are incurred at n= 1 and 2. Find the mean and the variance of the net present value at MARR = 10 %. Assume independence among all costs and across time. Problem 2. Consider the following three projects with the means and the standard deviations of their NPV's. Assuming normal distribution and an aspiration level of $ 10,000, select the best project. Project E(NPV) 20,000 10,000 8,000 S.D.(NPV) 5,000 2,000 1,500