(a) Determine the expected present worth of the following cash flow series if each series may be realized with the probability shown at the head of each column. Let i = 20% per year. (b) Determine the expected AW value for the same cash flow series.
 FIGURE 1.png)
(a) The subscripts identify the series by probability.
PW0.5 = –5000 + 1000(P/A,20%,3)
= –5000 + 1000(2.1065)
= $–2894
PW0.2 = –6000 + 500(P/F,20%,1) + 1500(P/F,20%,2) + 2000(P/F,20%,3)
= –6000 + 500(0.8333) + 1500(0.6944) + 2000(0.5787)
= $–3384
PW0.3 = –4000 + 3000(P/F,20%,1) + 1200(P/F,20%,2) – 800(P/F,20%,3)
= –4000 + 3000(0.8333) + 1200(0.6944) – 800(0.5787)
= $–1130
E(PW) = (PW0.5)(0.5) + (PW0.2)(0.2) + (PW0.3)(0.3)
= –2894(0.5) – 3384(0.2) – 1130(0.3)
= $–2463
(b) E(AW) = E(PW)(A/P,20%,3)
= –2463(0.47473)
= $–1169
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