An engineering firm is evaluating an energy efficiency project. If the weather is good in the spring, the first cost will be $2600K, if the weather is poor the first cost is estimated at $3000K. In the past the probability of good/bad weather has been 50/50. There is a 40% probability that the annual benefits will be $700K per year, 50% the benefits will be $500K, and 10% that the benefits will be $400K. The company evaluates projects using a 12% rate. The project life is expected to be 10 years.
What is the expected value of the first cost and savings? What is the expected present worth of the project?