Repeat Problem except use the normal distribution for the CFAT in years 7 through 10 with an expected value of $2000 and a standard deviation of $500.

Carl, an engineering colleague, estimated net cash flow after taxes (CFAT) for the project he is working on. The additional CFAT of $2800 in year 10 is the salvage value of capital assets.

Year                         CFAT, $

0 ............                _28,800

1–6 ............                5,400

7–10 ..........               2,040

10 ...........                  2,800

The PW value at the current MARR of 7% per year is

PW = –28,800 + 5400(P/A, 7%, 6) + 2040(P/A, 7%, 4) (P/F, 7%, 6) + 2800(P/F, 7%, 10) = $2966

Carl believes the MARR will vary over a relatively narrow range, as will the CFAT, especially during the out years of 7 through 10. He is willing to accept the other estimates as certain. Use the following probability distribution assumptions for MARR and CFAT to perform a simulation—hand- or spreadsheet-based.

MARR. Uniform distribution over the range 6% to 10%.

CFAT, years 7 through 10. Uniform distribution over the range $1600 to $2400 for each year.

Plot the resulting PW distribution. Should the plan be accepted using decision making under certainty? Under risk?