A swim club is designing a new pool to replace its old pool. The new pool would

Question

A swim club is designing a new pool to replace its old pool. The new pool would need to last for 10 years since the club is planning on relocating after 10 years. A concrete shell would cost $150,000 and last for all 10 years. Another option is to install a vinyl liner that would cost only $85,000 to install. However, the vinyl is not guaranteed to last for all 10 years, and has a 33% chance of breaking down. Repair of the vinyl would cost $50,000 and would extend the life of the vinyl liner to the 10-year mark. If both options are acceptable to the swim club, which one minimizes their cost?

Explanation / Answer

Its problem of Expected value Option 1: installation ofconcrete shell cost $150,000 Option 2: installation ofvinyl linercost $85,000 + repair 50,000 Expected value of expenditure = 85,000 + 0.33*50,000 = $101,500 So option 2 minimizes overall cost Please Rate 5 star for help and Explaination

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