Useful Life, Years (N)	P(N) of renovation	P(N) of Rental Income
13	0.10	0.05
14	0.12	0.05
15	0.23	0.10
16	0.20	0.12
17	0.15	0.13
18	0.10	0.17
19	0.05	0.18
20	0.05	0.20

Consider the renovation of a shopping center. The renovation includes making changes to existing area and adding a food court. Your firm has been hired by the owners to Perform a technical analysis of the system; Develop a preliminary design for renovation to existing area and adding a new area; Accomplish an engineering economic analysis to assist the owners in making decisions Given the project is completed on schedule, the estimated economic capital investment cost and the annual savings in overhead and maintenance expenses, based on preliminary design, are shown in the following table. The owner will be able to increase the rent due to renovation and the estimated annual increase in rental income has been developed by the owners marketing staff and is also provided in the table. Since a food court is being added, it will have a salvage value as given below at the end of 20 years. Furthermore a delay in finishing the project is going to cost owner at a rate of 3000t2. Economic Factor Estimate Capital investment -$10,000000 Annual saving $300,000 Increase rental income $500,000 Salvage value of addition $3,000000 These estimates are considered quite reliable because of the extensive information available. The useful life of the renovation system, however, is quite uncertain. The useful life of the addition (food court) is also uncertain. The estimated probabilities of various useful lives are provided as follows: Useful Life, Years (N) P(N) of renovation P(N) of Rental Income 13 0.10 0.05 14 0.12 0.05 15 0.23 0.10 16 0.20 0.12 17 0.15 0.13 18 0.10 0.17 19 0.05 0.18 20 0.05 0.20 Assume that the minimum attractive rate of return (MARR) = 5% per year and the market value of the renovation system at the end of its useful life is zero but market value of addition is $3,000000 at the end of 20 years. Based on this information, what is the E(PW), the variance V(PW), and standard deviation SD(PW) of the projects cash flow? Also, what is the probability of the present worth (PW) 0? What decision would you make regarding the project and how would you justify your decision using available information? Hint: In using Equation 9.2, N for AR (Annual saving) should come from P(N) of renovation (2nd column in above Table) and N for increase rental income and salvage value of addition should come from P(N) of Rental Income (3rd column in above Table). Effectively you will need at extra column in Table 9.5 (Useful life 1 and useful life 2).

Economic Factor	Estimate
Capital investment	-$10,000000
Annual saving	$300,000
Increase rental income	$500,000
Salvage value of addition	$3,000000