eed help in economics Homework 4 (100 pts) 1. (10 pts) Ross Systems i

eed help in economics Homework 4 (100 pts) 1. (10 pts) Ross Systems i

eed help in economics
Homework 4 (100 pts)
1. (10 pts) Ross Systems in considering four projects A, B, C and D that have
risks associated with the producing benefits. Based on the information given in
the table below, which project is more desirable for the company?
2. a) (10 pts) Find the expected EUAW from the cost data provided in the table
below for an equipment being considered at John Case Inc. in Dickson,
Tennessee. Because of the uncertainty of technology being used in this
equipment, it has not been possible to get the initial cost accurately. The annual
benefit, however, is estimated to be ,000 with a possible equipment life of 5
years. The salvage value is expected to be 10% of the initial cost. MARR =8%
First Cost, $ ,000 ,000 ,000 ,000
Probability 0.25 0.35 0.30 0.10
b) (10 pts) Determine the associated risk measure in this equipment investment
in terms of standard deviation.
3. (10 pts) Three estimators at Tech Engineering have come up with the
estimates of cash flows as shown in the table below for a project with a life of
10 years. Compute the expected NPW at 20%.
Data Estimator I Estimator II Estimator III
First Cost, $ 5,000 8,750 7,500
Benefits /Year, $ 3,750 4,000 3,000
Salvage Value 1,750 1,000 5,000
4. (10 pts) A sample of automobile batteries is tested.
The distribution of
battery life is found to be mound-shaped and symmetrical (normal) with a mean
life of 36 months and a standard deviation of six months.
The batteries carry
a 24-month guarantee. What percent of batteries will fail in less than 24 months?
5. (15 pts) An investment of ,000 is expected to generate annual revenue
of ,000 throughout life of the investment. The risk is based the life of the
investment. The estimate of probabilities for the duration of the investment is
given in the table below. No matter what the life of the investment might be,
Project A Project B Project C Project D
EUAW Prob. EUAW Prob. EUAW Prob. EUAW Prob.
,000 0.2 ,000 0.1 -,000