Problem: A new engineer is evaluating whether to use a larger diameter pipe for a water line. It will cost $350,000 more initially, but it will reduce pumping costs. The optimistic, most likely, and pessimistic projections for annual savings are $30,000, $20,000, and $5000, with respective probabilities of 20%, 50%, and 30%. The interest rate has equal probabilities of being either 6,7, or 8%, and the water line should have a Life of 40 years.Compute the expected annual savings and the expected PW of the project.
Expected Annual Savings =$15,000
Expected PW of Project = -$42,581
Expected Annual Savings =$17,500
Expected PW of Project = -$116,695
Expected Annual Savings =$20,000
Expected PW of Project = -$138,521
Expected Annual Savings =$22,500
Expected PW of Project = -$198,897