=+d A change in the law now makes the outcome of Project D subject to risk because the cash flows depend upon the actions of central government. The project will still require an initial cash outflow of £150,000. If the government licensing agency decides at Time 0 to permit Alder a licence for a one-year trial production and sale of the product, then the net cash flow for the first year will be +£50,000. If the agency decides to allow the product to go on sale from time 0 under a four-year licence without a trial run the cash inflow in Year 1 will be +£70,000. The proba-

bility of the government insisting on a trial run is 50 per cent and the probability of full licensing is 50 per cent.