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A company, is considering a project that has a 1 year life and a fixed cost of pound 9,000. The cash flow is uncertain during
A company, is considering a project that has a 1 year life and a fixed cost of pound 9,000. The cash flow is uncertain during that year but is estimated to be pound 10,000 with 70% chance or pound 15,000 with 20% chance or pound 20,000 with 10% chance. If the discount rate is 15%, which one of the following statements is correct (to the nearest whole number)? The expected net present value is less than pound 1,000 but there is a 70% chance of ending up with a positive net present value. The expected net present value is more than pound 1,000, and there is a 2 in 3 chance that of ending up with a positive net present value. The expected net present value is more than pound 1,000, but there is only a 30% chance of ending up with a positive net present value. The net present value is certain to be more than pound 1,000. The expected net present value is more than pound 1,000, but there is a 1 in 3 chance of ending up with a negative net present value. None of the above
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