Exhibit 10-1 a Company Is in the Planning Phase of Constructing a Constructing

question 29

Essay

Exhibit 10-1
A company is in the planning phase of constructing a new production facility. It wants to build a simulation model for the economics of the facility, and one key uncertain input is the construction cost. For each of the scenarios in the questions below, choose an "appropriate" distribution, together with its parameters, and explain your choice.
-Refer to Exhibit 10-1.A little later on,management still believes the upper and lower bounds for the costs are $5M and $8M,but now they can also state that "we believe the most likely value is about $6.5M."

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Definitions:

Commercially Feasible

A product or project is considered commercially feasible if it is likely to generate a sufficient level of income to outweigh its costs and risks.

Tangible E&E Assets

Tangible Exploration & Evaluation Assets; physical assets used in the exploration and evaluation of mineral resources.

Fair Value

The estimated market price at which an asset or liability could be bought or sold in a current transaction between willing parties.