At Stage 2 of the decision tree it shows that if a project is successful, the payoff will be $53,000 with a 0.7 chance of occurrence. There is also the 0.3 chance of a $24,000 payoff. Stage 2 is a year from now. The cost of the project is $25,000 today (Stage 1). The cost of capital is 15 percent. What is the NPV of the project at Stage 1? (Hint: Solve for the expected value of the payoff a year from now, discount the value, and then compare with initial investment).

answers:

a) -$1,600

b) $1,600

c) -$4,900

d) $4,900

e) -$12,391.30

At Stage 2 of the decision tree it shows that if a project is successful, the payoff will be $53,000 with a 0.7 chance of occurrence. There is also the 0.3 chance of a - $ 24,000 payoff. Stage 2 is a year from now. The cost of the project is $25,000 today (Stage 1). The cost of capital is 15 percent. What is the NPV of the project at Stage 1? (Hint: Solve for the expected value of the payoff a year from now, discount the value, and then compare with initial investment). -$1,600 $1,600 -$4,900 $4,900 -$12,391.30