At Tech Engineering, a new equipment is expected to cost $100,000. The annual savings are estimated to be $12,000, $15,000, and $20,000 respectively for 10 years of its life with probabilities of 0.4, 0.5, and 0.1 respectively. The annual savings for this equipment is $15,667.

Question

Quizplus · Accepted Answer

The expected annual savings should be calculated using the probabilities and savings amounts: (0.4 * $12,000) + (0.5 * $15,000) + (0.1 * $20,000) = $14,300, not $15,667.

At Tech Engineering, a New Equipment Is Expected to Cost