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 in flow at the end of 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 at the end of Year 1 will be 70,000. The probability of the government insisting on a trial run is 50 per cent and the probability of full licensing is 50 per cent. If the trial run takes place then there are two possibilities for future cash flows. The first, with a probability of 30 per cent, is that the product is Mock Exam Paper 1 Semester 2, 2022-2023 ECON6011 Page 4 of 14 Oxford Brookes University 08/05/23 subsequently given a full licence for the remaining three years