Question
Assume the cash flows arising from a project are the only potential source of cash flow for a company and the company currently owes
Assume the cash flows arising from a project are the only potential source of cash flow for a company and the company currently owes 0.7 million debt at an interest rate of 15% per annum. In one year's time, the project will either yield a cash inflow of 1.4 million with a probability of 30% or a cash inflow of 3.5 million with a probability of 70%. In one year's time, the company will be closed and the proceeds distributed to shareholders. What is the expected cash inflow for shareholders in one year's time?
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