Assume Ò100-year stormÓ will require
trestle bridge to be replaced.
Such a storm would occur with a
probability of 0.01 that in any year the bridge will be destroyed. Using binomial probability tables for n = 50 and p = 0.01, we find the probability of having any number
of floods during the next 50 years
Probability
Number of Ò100-year stormsÓ
0.60 0
0.31 1
0.08 2
0.01 3
If a storm occurs during next 50 years,
the additional cost incurred would be an extra $80,000 (unless storm occurs happens to occur in the
year in which the bridge was schedule
to be replaced, and an additional negative benefit of $90,000 for each month the region is
without the bridge.
Costs depend on
years (time) in which the storm(s) occur(s).
Estimate the PV of
the additional costs by averaging its time of occurrence.