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An alternative energy project will cost $30000. Depending on the price of electricity, the project will create after-tax savings of either $12000 per year for
An alternative energy project will cost $30000. Depending on the price of electricity, the project will create after-tax savings of either $12000 per year for 3 years or $7655 per year for 3 years. There is a 62% likelihood of the higher outcome occurring. If first year savings are only $7655, the project can be sold at the end of the first year for $25000. What is the expected NPV of the project if the option to abandon is considered, given a discount rate of 9%?
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