A project has a life of 10 years, and no salvage value. The firm uses an interes

Question

A project has a life of 10 years, and no salvage value. The firm uses an interest rate of 12% to evaluate projects. This project has an uncertain initial cost and net revenue as below. A. Joint probability distribution for cost and net revenue B. Expected value of NPW for this project C. Standard Deviation for this project D. Assume the alternative project has expected value of $52,000 and standard deviation of $80,000. Which project should you choose between two projects? Why?

Initial Cost Probability Net Revenue Probability

$ 300,000 0.2 70,000 0.3

$400,000 0.5 $ 90,000 0.5

$ 600,000 0.3 $ 100,000 0.2

Explanation / Answer

Net Revenue

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