2. The 1 cost of a t of a piece of new manufacturing equipment follows a normal

Question

2. The 1 cost of a t of a piece of new manufacturing equipment follows a normal distribution with a mean of $50,000 and a standard deviation of $2,500. The annual benefit follows a normal distribution with a mean of S10,000 and a standard deviation of $2,500. The life of the equipment follows a discrete uniform distribution with integer values 10, 11, 12 and 13 years. Assume an interest rate of 6%. Run 10 simulations and calculate both the expected value and standard deviation of the present worth? Page 1

Explanation / Answer

The annual benefit is B with N(10000,2500) and the cost C is N(50000,2500) and the lifetime T is discrete with values (10,11,12,13) with interst rate as 6%. The present value or worth is Sum( A(t)/(1+i)^t) from (0,T)-C.

Simulating for ten values the expected value and standard deviation of present worth is

33979.69 18130.8238

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