Suppose an electric utility is considering building a new 500 MW power plant and is choosing between two types: C (conventional) and A (advanced). Type C is well understood: it would operate with a capacity factor of 0.9 and would earn $10 of per MWh after deducing fuel and maintenance costs. (That is, all costs other than the construction cost are accounted for and you don’t need to compute them.) Type A is advanced. It would use cheaper fuel and earn $20 of profit per MWh. However, its capacity factor is uncertain: there is a 50% chance it would be 0.9 and a 50% chance it would be 0.3 (down frequently for repairs). Both types cost $1 million per MW of capacity and would last for 30 years. Either plant can be constructed immediately (period 0) and will produce power for 30 years (periods 1-30). The utility uses an interest rate of 5% in present value calculations.