A project needs an investment of $50k at time zero and $30k at the end of year 1. It is expected to generate a net income of $50k for year 1 to 8. At the end of 8^th year, it is expected to incur an environmental cost of $40k and a salvage value of $60k. Please calculate NPV at a minimum DCFROR of 15%.

Probability	0.5
Year	0	1	2	3	4	5	6	7	8	9	10
Initial Investment	-200,000	-150,000	0	0	0	0	0	0	0		0
OPEX	0	0	-8,000	-8,000	-8,000	-8,000	-8,000	-8,000	-8,000	-8,000	-8,000
Annual Income	0	0	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000	300,000
Salvage Value	0	0	0	0	0	0	0	0	0	0	-80,000
Environmental Cost	0	0	0	0	0	0	0	0	0	0	-75,000
Cash Flow	-200,000	-150,000	292000	292000	292000	292000	292000	292000	292000	292000	137000
Probability	0.3
Year	0	1	2	3	4	5	6	7	8	9	10
Initial Investment	-200,000	-150,000	0	0	0	0	0	0	0	0	0
OPEX	0	0	-8,000	-8,000	-8,000	-8,000	-8,000	-8,000	0	0	0
Annual Income	0	0	270,000	270,000	270,000	270,000	270,000	270,000	0	0	0
Salvage Value	0	0	0	0	0	0	0	-70,000	0	0	0
Environmental Cost	0	0	-10,000	-10,000	-10,000	-10,000	-10,000	-10,000	0	0	0
Cash Flow	-200,000	-150,000	252000	252000	252000	252000	252000	182000	0	0	0
Probability	0.2
Year	0	1	2	3	4	5	6	7	8	9	10
Initial Investment	-200,000	-150,000	0	0	0	0	0	0	0	0	0
OPEX	0	0	-8,000	0	0	0	0	0	0	0	0
Annual Income	0	0	0	0	0	0	0	0	0	0	0
Salvage Value	0	0	-350,000	0	0	0	0	0	0	0	0
Environmental Cost	0	0	0	0	0	0	0	0	0	0	0
Cash Flow	-200,000	-150,000	-358000	0	0	0	0	0	0	0	0
Expected Cash Flow	-200000	-150000	150000	221600	221600	221600	221600	200600	146000	146000	68500
IRR	42%

Now, evaluate the probability for the project to be economically satisfactory and the most likely NPV to be achieved.

Hint: One may analyze the sensitivity NPV to the following parameters and then plot probability vs. NPV.

Costs (+/- 40%)

• Incomes (+/- 30%)
• Salvage value (+/-20%)
• Environmental Cost (+/- 30%)
• Project life (+/- 50%)
• Plot a tornado diagram
• Rank the five uncertain parameters based on the NPV sensitivity analysis