English

CDFCumulative Probability100%80%60%40%20%0%-400 -200 0 200 400 600NPVA NPVBNPV90% VAR for NPVA90%VAR for NPVB 10% Probability• Look at distribution of NPV of designs A, B:– 90% VAR for NPVA is -$91– 90% VAR for NPVB is $102Garage Case, etc de Neufville, Scholtes and Wang Slide 5 of 23Notes:• Cumulative distribution function (CDF)shows the probability that the value of avariable is < or = to quantity on x axis• VAR can be found on the CDF curve:– 90% VAR => 10% probability the value isless or equal– NPV corresponding to the 10% CDF is90% VARGarage Case, etc de Neufville, Scholtes and Wang Slide 6 of 233