=+8 A project with an initial outlay of Elm has a 0.2 probability of producing a return of

£800,000 in Year 1 and a 0.8 probability of delivering a return of £500,000 in Year 1. If the £800,000 result occurs then the second year could return either £700,000 (probabil-

ity of 0.5) or £300,000 (probability of 0.5). If the £500,000 result for Year 1 occurs then either £600,000 (probability 0.7) or £400,000 (probability 0.3) could be received in the second year. All cash flows occur on anniversary dates. The discount rate is 12 per cent.