1. (2.5 points) Emerson Power is evaluating the construction of a new electric generation facility.

  

1. (2.5 points) Emerson Power is evaluating the construction of a new electric generation facility. The two choices are a coal-burning plant (CB) and a gaseous diffusion (GD) plant. The CB plant will cost $350 per megawatt to construct, and the GD plant will cost $450 per megawatt. Owing to uncertainties concerning fuel availability and the impact of future regulations related to air and water quality, the useful life of each plant is unknown, but the following probability estimates have been made.Useful life (years)ProbabilityCB PlantGD Plant100.050.10200.250.50300.500.30400.200.10Determine the expected life of each plant.Based on the ratio of construction cost per megawatt to expected life, which plant wouldyou recommend that Con Ed build?2. (2.5 points)A new machine will cost $35,000. The machine is expected to last 4 years andhas no salvage value. The following is known about the annual savings due to the new machine.p=.30 p=.40 p=.30 Annual savings $7,000 $8,500 $9,500If the interest rate is 7%, determine the NPW of the machine.1
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Homework 5
Total Points: 5
Due date: July 29, 2019
1.
(2.​5 points​) Emerson Power is evaluating the construction of a new electric generation
facility. The two choices are a coal-burning plant (CB) and a gaseous diffusion (GD) plant.
The CB plant will cost $350 per megawatt to construct, and the GD plant will cost $450 per
megawatt. Owing to uncertainties concerning fuel availability and the impact of future
regulations related to air and water quality, the useful life of each plant is unknown, but the
following probability estimates have been made.
Useful life (years)
Probability
CB Plant
GD Plant
10
0.05
0.10
20
0.25
0.50
30
0.50
0.30
40
0.20
0.10
a. Determine the expected life of each plant.
b. Based on the ratio of construction cost per megawatt to expected life, which plant would
you recommend that Con Ed build?
2.
(2.​5 points​) A new machine will cost $35,000. The machine is expected to last 4 years and
has no salvage value. The following is known about the annual savings due to the new
machine.
Annual savings
p​=.30
p​=.40
p​=.30
$7,000
$8,500
$9,500
If the interest rate is 7%, determine the NPW of the machine.
1

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