(Solution) An engineer is considering the size of a reservoir for flood control in the northern part of Germany. The size of the reservoir is closely related... > Snapessays.com

(Solution) An engineer is considering the size of a reservoir for flood control in the northern part of Germany. The size of the reservoir is closely related...

1.

An engineer is considering the size of a reservoir for flood control in the northern part of

Germany.

The size of the reservoir is closely related to the annual rainfall.

there will be reparation costs from damages when the amount of rainfall exceeds the

design capacity.

If such damage occurs, it is estimated that the annual reparation cost

will be 2.5% of the capital investment.

The probabilities of specific amounts of rainfall

per year and the estimated investment costs of the reservoir are given below.

Using an

interest rate of 10% per year and a study period of 11 years, determine the appropriate

investment on the basis of AW.

Annual

Rainfall, M

3

Probability of

Greater

Rainfall

EsTmated

Capital

Investment \$

110

0.6

\$2,500,000

120

0.2

\$2,550,000

130

0.1

\$2,600,000

140

0.055

\$2,650,000

150

0.045

\$2,700,000

a)

What is the AW (Annual Worth) for annual rainfall 110?

b)

What is the AW (Annual Worth) for annual rainfall 120?

c)

What is the AW (Annual Worth) for annual rainfall 130?

d)

What is the AW (Annual Worth) for annual rainfall 140?

e)

What is the AW (Annual Worth) for annual rainfall 150?

f)

Which annual rainfall reservoir size would you select?

2.

Buffalo Manufacturing is considering purchasing new equipment with an initial cost of

\$65,000 and zero market value at any time of its useful life.

The company expects this

new equipment to generate additional net revenue of \$6700 per year.

Due to the harsh

environment in which the equipment will be operated, the useful life of the equipment is

uncertain.

The estimated probabilities of different useful lives are shown below.

Calculate the expected present worth and variance of present worth associated with the

purchase of the equipment.

Assume the company's MARR is 10% per year.

Useful life, Years (N)

P(N)

3

0.1

4

0.1

5

0.15

6

0.18

7

0.47

a)

Calculate the expected present worth associated with the purchase of the equipment

1

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