Answer to Question #275770 in Economics of Enterprise for Fernando

Question

A road between Fairbanks and Nome, Alaska, will have a most likely construction cost of $4 million per

mile. Doubling this cost is considered to have a probability of 30%, and cutting it by 25% is considered

to have a probability of 10%. The state’s interest rate is 8%, and the road should last 40 years. What is

the probability distribution of the equivalent annual construction cost per mile?

Answer 1

Net present value is a way of sorting the existing value against the original asset value of all possible retained earnings created by a company: