Kernow Ltd provides street-cleaning services for a small town. The work is currently labour intensive and few machines are employed. However, the business has recently been considering the purchase of a fleet of street-cleaning vehicles at a total cost of

£540,000. The vehicles have a life of four years and are likely to result in a considerable saving of labour costs. Estimates of the likely labour savings and their probability of occurrence are set out below:

Estimated savings £ Probability of occurrence Year 1 80,000 0.3 160,000 0.5 200,000 0.2 Year 2 140,000 0.4 220,000 0.4 250,000 0.2 Year 3 140,000 0.4 200,000 0.3 230,000 0.3 Year 4 100,000 0.3 170,000 0.6 200,000 0.1 Estimates for each year are independent of other years. The business has a cost of capital of 10 per cent.

(a) Calculate the ENPV of the street-cleaning machines.

(b) Calculate the NPV of the worst possible outcome and the probability of its occurrence