3. Chase ltd is evaluating a new technology for its reproduction equipment. The technology will have a three-year life and would cost shl800, 000. Its impact on the first year, management estimates that there is an equal chance that the technology will wither succeeds and save the company shs. 800,000 of fails saving if nothing as at all. If the technology fails in the first year, savings in the last two years will be 200. Even worse there is a 40% chance that an additional

shs240, 000 may be required in the second year to convert bank to the original process.

Third year cash plans are then expected to be sh.160,000 greater or sh 160,000 less than cash flows in the second year, with equal chance of either occurring. The cash flow given above is after taxes.

Required;

a) Probability tree depicting the above cash flow possibilities. (14 marks)

b) Net profit value of each possibility using a risk-free rate of 5%. (3 marks)

c) Expected NPV of the technology using risk free rate of 5% (3 marks)