Problem
A company is considering two investment projects whose present values are described as follows:
Project 1: NPW(10%) = 20 X + 8 XY,
where X and Y are statistically independent discrete random variables with the following distributions:
|
Variable X
|
Variable Y
|
|
Event
|
Probability
|
Event
|
Probability
|
|
$20
|
0.55
|
$11
|
0.3
|
|
$40
|
0.45
|
$22
|
0.7
|
Project 2:
|
NPW (10%)
|
Probability
|
|
$0
|
0.23
|
|
$300
|
0.20
|
|
$1500
|
0.37
|
|
$2200
|
0.2
|
[a] Compute the mean and variance of the NPW for project 1 (NPW1),
[b] Identify the joint outcome(s) by the pair of NPW values (NPW1 = ? and NPW2=?) such that Project 2 is considered better than Project 1. Note there are a total of 4 possible NPW1 values and four given NPW2 values. Therefore, you have a total of 16 different pairs of NPW values.
[c] Calculate the probability that Project 1 is better than Project 2?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.