Question
In: Finance
There is a project of $ 5,000 which has 2 scenarios: Positive: probability 70% flows: $...
There is a project of $ 5,000 which has 2 scenarios:
Positive: probability 70% flows: $ 8,000 for 2 years
Negative: probability 30% flows $ 3,000 for 2 years If the discount rate is 14%
solve the decision tree.
Solutions
Expert Solution
| Calculation of NPV | |||
| Year | Cashflow | DF @14% | PV |
| 0 | $ (5,000) | 1.0000 | $ (5,000) |
| 1 | $ 6,500 | 0.8772 | $ 5,702 |
| 2 | $ 6,500 | 0.7695 | $ 5,002 |
| Net Present Value | $ 5,704 |
| Calculation of Expected cashflow | |||
| Year | Prob. | Cashflow | Expected Cashflow |
| 1 | 0.7 | $ 8,000 | $ 5,600 |
| 0.3 | $ 3,000 | $ 900 | |
| $ 6,500 | |||
| 2 | 0.7 | $ 8,000 | $ 5,600 |
| 0.3 | $ 3,000 | $ 900 | |
| $ 6,500 |
Project is should be accepted.
jeff jeffy answered 1 year agoRelated Solutions
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