Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 $100,000 $100,000 $100,0

ID: 2427191 • Letter: N

Question

Net After-Tax Cash Flows

Year P = 0.2 P = 0.6 P = 0.2

0 $100,000 $100,000 $100,000

1 20,000 30,000 40,000

2 20,000 30,000 40,000

3 20,000 30,000 40,000

4 20,000 30,000 40,000

5 20,000 30,000 40,000

5* 0 20,000 30,000

4. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.)

Line 0 gives the cost of the process.

Line 5 gives the estimated salvage value.

Calculation of expected Cash Flows each year:

Year 0

Year 1 to 4 each

Year 5

Calculation of project's expected NPV

Cash Flows Probability Expected Cash flows -100000 0.2 -20000 -100000 0.6 -60000 -100000 0.2 -20000 Total -100000

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.