PROBABILITY Probability - ratio of ways an event can occur in a specified manner to the total number of ways the event can occur OOO Exclusive - occurrence of one outcome excludes the possibility of another (if coin toss results in heads, it can't be tails) Independent Event - occurrence of one event does not affect subsequent events (coin toss turning up heads on first toss does not affect outcome of second toss) Dependent Event - occurrence of one event does affect subsequent events (selection of a single card from deck does affect the outcome of the second choice) Addition Rule - the probability that one of s occur is the sum of the separate probabiliti Multiplication Rule - the probability that two (or occur is the product of their separate probabilities (1ann) WHAT IS THE PROBABILITY OF: mutually exclusive events will \dependent events will 1. Getting a"1" when rolling a die?__ Lin & Pi+Pr=1 2. Not getting a"1" when rolling adie? _S eta b BCSP. p. 6 i 3. Getting a "1" or "2" in one roll of a die? % / \ be 4. Getting "snake eyes" when rolling two die? I Nels geadepedst pre o otk 5. A machine produces 0.02 defective parts. The probability 3 that none of ten parts sampled will be ‘ee ig ay det Sf ; vas oe ree 6. The probability that some of the above parts are defective is ott le ot? oOo. 7. The probability that all of the above parts are defective ig horrie ropes def 2 002" 2 Jmexre Langlois, Weigand & Associates, Ine, Page §a STATISTICS wk ‘There are two major branches of statistics: descriptive and inferential “je Descriptive - summary information about a population (measures of central tendency, variance) [See Venn Diagram] ve ae eye" Inferential - generalizing from sample to population (prediction, inference) Mean - sum of measurements divided by the total number of measurements (Average or x) alc ‘ Median - middle value when measurements are arranged in order = Mode - measurement that occurs most often (highest frequency) v Range - difference between smallest and largest measurements, oe Meee Sy 3s Standard Deviation - positive square root of the variance (indicates how closely the measurements vary about the mean) (BCSP pg. 7) Sample Standard Deviation 3 o= 20) PopulationStandard Deviation Langlois, Weigand & Associates, Inc., Page 9Lo THE NORMAL DISTRIBUTION Hate 5, 109 Jade mee oltre a me tbe sped DN ee abet He mes 713.5% | we 3 -1 0 +1 +200 43 54 98 120 142 164 186 Average Score—120 Standard Deviation—22 NOTE: +1sd=68% +2sd=95% +3sd=99.7% Determine the following based on these sample data: 8, 12, 25, 25, 28, 36, 41 1. Median -_ 2S 2. Mode-__ 95 Sager 3. Range-__ 93 4. Mean-__26 (use calculator’s statistics function) 5. Sample Standard Deviation -_1 7& (use calculator’s statistics function) 6. Population Standard Deviation -_{ 0-74 (use calculator’s statistics function) /The approximate standard deviation can be determined by dividing the range by four. Langlois, Weigand & Associates, In., Page 10,7 8. 1 When all data is not distributed normally (a bell-shape) is it known as skewed. The distribution on the left is skewed to the _ [eft _. The dotted line in the below distributions represents the mel. (mean, median, mode) J\ SX negative skew: The left tail is longer; the mass of the distribution is concentrated on the right of the figure. It has relatively few low values. The distribution is said to be left- skewed. Example (observations): 1,1000,1001,1002, 1003. positive skew: The right tail is longer; the mass of the distribution is concentrated om the left of the figure. It has relatively few high values. The distribution is said to be right- skewed. Example (observations): 1,2,3,4,100. Langlois, Weigand & Associates, Inc., Page 11ENGINEERING ECONOMY Present Value - value today of a future payment or series of payments at a set interest rate for a fixed number of years th L dealet 4 Annuity - a series of payments of a fixed amount for a specified number of years a «uit Saul (payments are made at the end of the year) Present Value (Present Worth) BCSP Formulas, BCSP p. 6 F ~ Future Value (Compound Sum) Amount of cash flow per time period (annually, quarterly, monthly) i = Interest rate per time period n=# of time periods NOTE: A, i, and n must all refer to same time period. SAMPLE PROBLEMS: damel / 1. What is the future value of a deposit of $5,000 if the interest rate is 10% and the time is 5 years? F=P(1 +i)" Future Value of a single payment (lump sum) \s (coooft4 1) * g000 x (4) BP082. 65 ‘What is the present value (discount value) of the future sum of $10,000 if the interest rate is 10% and the time is 10 years? P=F(1 +i)" Present Value of a single payment joeoe A, 058 Langlois, Weigand & Associates, Inc., Page 123 What is the future value of saving $100 per month if the interest rate is 6% and the time is 10 years? 4 5 2 ive dgmh ’ (i+ ) = 06/2 paks F= A|*~~—— |ruture Value of Series of Savings 2 o.a0s/ne pesto 9) (RE) 2 vee (un) oti3t wae 4. Your company has decided to obtain a new machine for the production floor. There are two options. Option one is to lease a new machine for 10 years at $2,000 per year. Option two is to purchase the machine for $10,000 with a maintenance agreement of $500 per year. After 10 years, you can sell the machine for a salvage value of $5,000. The value of money will be 15% for the ten years. Which option do you recommend? pa af lri"=1 a, PA say | PV of regular payments 4 P=F(I+i)" PV of lump sum pion 2 ppm cies BOF sex , coo ¢ Cus'*-0) 2T gan y vere chgeyy Cov a ye : gery Tene for xi] 2 GOT ope A — Tht Pecctoe as . ee? cos (Mt) «Eo sonyeee cagenGes? Be "007 renee Feel = 7773 Toss Cost ae Rvag = 089 Ks BL 996 a Langlois, Weigand & Assocites Inc. Page 1 Jule! fie” o oS ea cr gc leneENGINEERING ECONOMY PRACTICE What is the present value of $10,000 five years from now if the interest rate is expected to be 7%? “ pe nnee (14007) yynoe Chand qm How much money should be in the bank if a one-time deposit of $20,000 is made and left for 20 years at 9% interest? What is the present value of an annuity that will pay $1,000 at the end of each of the next three years and the interest rate is 8.5%? How much money must be deposited today for the balance to equal $50,000 in 20 years if the interest rate is 72%? Langlois, Weigand & Associates, In., Page 14ENGINEERING ECONOMY PRACTICE ANSWERS, Question Answer 7,100 112, 000 2,600 12,900 Formula PHF [..J FP [..J P=A [...] PF [uJ Langlois, Weigand & Associates, Inc, Page [5