The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year O Year 1 -$400 $200 (5) O $542.48 O $594.74 O $510.77 O $486.82 O $576.93 Year 2 $600 (5) $100 (5) $300 (.5) $400 (5) $600 (5) $600 (5) $800 (5) What is the expected NPV for this project if the appropriate cost of capital is 10 percent? $500 (.5) IV V V $700 (5) Year 3 $ 0(5) $200 (5) $200 (5) $400 (5)
The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year O Year 1 -$400 $200 (5) O $542.48 O $594.74 O $510.77 O $486.82 O $576.93 Year 2 $600 (5) $100 (5) $300 (.5) $400 (5) $600 (5) $600 (5) $800 (5) What is the expected NPV for this project if the appropriate cost of capital is 10 percent? $500 (.5) IV V V $700 (5) Year 3 $ 0(5) $200 (5) $200 (5) $400 (5)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The cash flows associated with a project can be represented by the following decision tree
(conditional probabilities are in parentheses):
Year 0
Year 1
-$400
$200 (5)
O $542.48
O $594.74
O $510.77
O $486.82
O $576.93
Year 2
$600 (5)
$100 (5)
$300 (.5)
$400 (5)
$600 (5)
$600 (.5)
$800 (5)
What is the expected NPV for this project if the appropriate cost of capital is 10 percent?
VV
$500 (5)
$700 (5)
Year 3
$ 0(5)
$200 (5)
$200 (5)
$400 (5)
IV
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