=+You believe the probability of RJW's projections being correct to be 50 per cent (or 0.5). You also estimate that there is a chance that RJW's estimates are over-cautious.

There is a 30 per cent probability of the cash flows being as shown in Table 2 (exclud-

ing the cost of purchasing the mines).

Table 2: A more optimistic forecast Time t 1

2 3

4 5 and all subsequent years Sales (Em) (cash inflows)

1.360 1,416.7 1,473.33 1,496 1,530 Less operating costs

(Em) (cash outflows)

1,100 1.140 1,190 1,225 1,250 Net cash flows (Em)

260 276.7 283.33 27 280