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A Compony studying to invest in project in Risky Future with the following cash flow distribution to: Year 0 Year 1 Year 2 Year 3
A Compony studying to invest in project in Risky Future with the following cash flow distribution to:
Year 0 | Year 1 | Year 2 | Year 3 | |||
(100) | CF | Probability | CF | Probability | CF | Probability |
58 | 0.2 | 60 | 0.6 | 56 | 0.4 | |
46 | 0.5 | 47 | 0.4 | 42 | 0.3 | |
32 | 0.3 |
|
| 34 | 0.3 | |
E (CF) Expected Cash Flow | ??? | ??? | ??? |
- Cost of Capital (K) = 10%
- Risk (Covariance ) = 0.7
- Probability (NPV > 0) = 90%
Calculate the Variances of each year CFs then the estimated NPV under risky future then the coefficient covariance to decide if we must ACCEPT or REJECT the project.
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