Chap_10 - IE3125Engineering EconomicAnalysis Chapter10...

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    IE 3125  Engineering  Economic Analysis Chapter 10 Risk Analysis
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    What Is Risk Analysis? Recognition that many economic  parameters are uncertain Expected value approach Probability approach
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    Expected value Finite series of possible outcomes Probability of each outcome Estimates Must total 1.00 = = = = N n N n n n P where n P Out EV 1 1 1 ) ( ) (
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    Example Powerball winnings ($1.00 ticket) $10,000,000 (1/120,000,000) $100,000 (1/3,000,000) $5,000 (1/100,000) $100 (1/12,250) $7 (1/190) $4 (1/124) $3 (1/70) 287 . 0 ) 972 (. 0 ) 0143 (. 3 ) 00807 (. 4 ) 00526 (. 7 ) 0000816 (. 100 ) 00001 (. 5000 ) 000000333 (. 100000 ) 3 0000000083 (. 10000000 = + + + + + + + = EV
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    Probability Approach Assign probability distributions to  parameters Cash flows (or components) MARR Compute the probability distribution of  the results PW, AW, FW, IRR, ERR, B/CR
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Chap_10 - IE3125Engineering EconomicAnalysis Chapter10...

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