Aconstruction project is planning for an initial investment of $200k for material and preparation. labor, equipment rental and miscellaneous services will cost $20k per month. it is most likely that construction will run 5 months but could run a month early or two months later. hence you will consider production time at $20k per month for 4, 5 and 7 months with probability 0.1, 0.7 and 0.2, respectively. determine the sales price with a 20% fee plus the expected value of the pw at one year. consider the marr is based on an annual interest rate of 5% compounded monthly.
i understand that i need to calculate pw but i'm not sure how the probabilities come into that equation.