Malaysias state water tariffs are one of the cheapest in comparison to its neighbor countries. The cost
Question:
Malaysia’s state water tariffs are one of the cheapest in comparison to its neighbor countries. The cost of a meter installation is RM10 per household. The daily cost of supplying water is assumed to be normally distributed, with a mean of RM10/m3 and a standard deviation of RM1.20/m3. The daily loss, which results from the interruption of water supply due to pipe leakage, is normally distributed with a mean of 2.2% and a standard deviation of 0.5%. Each household currently gets its water supply from the provider at a rate of RM0.57/m3. Based on analysis of previous years’ water bills, the daily cost of water is expected to increase following a triangular distribution with most likely value of 5%, minimum of 3%, and maximum of 7%, beginning with the first day. The cost of capital is estimated to be 4%. Develop a simulation model using 500 trials to find the net present value of the water supply over a five-day period, including the water tariffs and meter installation cost. What is the probability that the water tariffs will be more than RM18?
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