Answer:
a) What is the expected annual savings and the expected PW?
Expected annual savings = ($80,000 x 20%) + ($50,000 x 55%) + ($40,000 x 25%) = $53,500
b) Compute the PW for the pessimistic, most likely, and optimistic estimates of the annual savings. What is the expected PW?
PW of expected annual savings = ($53,500 x 6.145) - $400,000 = $328,757.50 - $400,000 = $71,242.50
c) Do the answers for the expected PW match? Why or why not?
Expected PW = ($91,600 x 20%) + (-$92,750 x 55%) + (-$154,200 x 25%) = -$71,242.50
Yes, they match.
