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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
1. Unfortunately, the Capital Investment Committee refused to approve your recommendation (Problem 1) since you did not consider the uncertainty inherent in these types of investments. You pull out your very dog-eared text from PMAN 635 and repeat your analysis, this time using Crystal Ball and the following information: a. Investment A: i. Year 0 Investment cost: Triangular distribution (optimistic: $125,000; most likely: $150,000; pessimistic: $175,000) ii. Year 1-5 operating cost: Normal distribution (mean of $10,000, standard deviation of $2,000) iii. Year 1 Benefits: Normal distribution (mean of $90,000, standard deviation of $20,000) iv. Year 2 Benefits: Normal distribution (mean of $55,000, standard deviation of $15,000) v. Year 3 Benefits: Normal distribution (mean of $35,000, standard deviation of $10,000) vi. Year 4 Benefits: Normal distribution (mean of $20,000, standard deviation of $5000) vii. Year 5 Benefits: Normal distribution (mean of $20,000, standard deviation of $5000) b. Investment B: i. Year 0 Investment cost: Triangular distribution (optimistic: $75,000; most likely: $80,000; pessimistic: $95,000) ii. Year 1 Benefits: Normal distribution (mean of $45,000, standard deviation of $20,000) iii. Year 2 Benefits: Normal distribution (mean of $15,000, standard deviation of $5,000) iv. Year 3 Benefits: Normal distribution (mean of $10,000, standard deviation of $3,000) v. Year 4 Benefits: Normal distribution (mean of $10,000, standard deviation of $3,000) vi. Year 5 Benefits: Normal distribution (mean of $15,000, standard deviation of $5,000) c. If the Internal Rate of Return (IRR) is still 6%, what is the NPV for each investment?
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