Question
An investment project requires the investment costs of $150,000 at the present time and $100,000 at year 1. There are three possible outcomes for this
An investment project requires the investment costs of $150,000 at the present time and $100,000 at year 1. There are three possible outcomes for this project:
1. 25% probability of success, which yields: annual income of $100,000 from year 2 to year 10 with a salvage value of $50,000 and environmental remediation cost of $60,000 at the end of year 10.
2. 45% probability of success, which yields: annual income of $80,000 from year 2 to year 7, an annual environmental remediation cost of $10,000 from year 2 to year 7, and a salvage value of $50,000 at the end of year 7.
3. 30% probability of failure: zero income for all the years and salvage value of $250,000 at the end of year 2 with no environmental remediation costs.
Calculate the ENPV and conclude if this is a good investment, considering the minimum rate of return (discount rate) of 15%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started