Harry is trying to evaluate a two year project using NPV. There is uncertainty as to the level of sales (in units) in each of the two years: Year 1 Sales units Probability Year 2 Sales units Probability 10,000 0.3 8,000 0.2 10,000 0.8 15,000 0.7 20,000 0.6 10,000 0.4 Required: (a) On what expected level of sales in Year 1 and 2 should Harry b
Harry is trying to evaluate a two year project using
Year 1 Sales units Probability Year 2 Sales units Probability
10,000 0.3 8,000 0.2
10,000 0.8
15,000 0.7 20,000 0.6
10,000 0.4
Required:
(a) On what expected level of sales in Year 1 and 2 should Harry base his NPV calculation?
(b) Imagine that the project outlay is £230,000 and each unit sold has a contribution of £10. If Harry’s cost of capital is 10%, what is the project’s expected NPV?
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