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b) Company A is considering investing in a project which has a three year life. The project would involve an initial investment of Sh.20 million.

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b) Company A is considering investing in a project which has a three year life. The project would involve an initial investment of Sh.20 million. The finance manager has come up with expected probabilities for various possible economic conditions as follows: Year Economic Conditions Sh.000 Net cash flows (20,000) Probability 0 1.0 1 High growth Average growth No growth 10,000 6,000 2,000 0.2 0.7 0.1 2 High growth Average growth No growth 12,000 8,000 4,000 0.3 0.5 0.2 3 High growth 16,000 0.4 Average growth 12,000 0.3 No growth 6,000 0.3 Required: Assuming a discount rate of 15% should company A invest in the project

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