Question

A paving company is buying two pavement recycling machines for $300k each with a service life of 8 years. They are estimating that there are 3 possible levels of demand for this service, namely low, medium and high with probabilities of 0.25, 0.4 and 0.35, resulting in annual incomes of $130k, $180k and $200k, respectively After the first year, they will have to make some decisions as shown on the following tree. Determine the probability that the net present value of the profit from this investment exceeds $300k. The annual rate is 3%. 4.

Answer 1

Given clata Jnvest ment for v 3oc. -rnnual g.ncome frP: ο 25- $,3ο k recylinq machines 3ook. 30 k aftes reach; 19 louiokabitt 30b 30k lo40 Net present Value- - loyo+ 30 S So 4112 pioba biuty nvestment each machine f6r me dium Doha bi 300 k Income o ba biif 0

23 6 160 t80 Netet Value a 00t 180 180 180 5 + 169.66+ --touoナ1266.49 L0 2- o, 35 > High Poba biuties 300 k Investmeutach machine louo 3 6 e

300 Netpeet value oo 300 300 ('·03)" い.03 )3 tun ofit mae tan 3co Dro ba bi it