Kernow Cleaning Services Ltd provides street-cleaning services for local councils in the far south west of England. 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 prob- ability 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. Required:

(a) Calculate the expected net present value (ENPV) of the street-cleaning machines.

(b) Calculate the net present value (NPV) of the worst possible outcome and the probability of its occurrence.

AppendixLO1