Bradford Services Inc. (BSI) is considering a project that has a cost of $10 million and an expected life of 3 years. There is a 30 percent probability of good conditions, in which case the project will provide a cash flow of $9 million at the end of each year for 3 years. There is a 40 percent probability of medium conditions, in which case the annual cash flows will be $4 million, and there is a 30 percent probability of bad conditions and a cash flow of -$1 million per year. BSI uses a 12 percent cost of capital to evaluate projects like this.

Problem 1: Find the projects expected cashflow and NPV

Condition	Probability	Cash Flow	Prob.*Cash Flow
Good	0.3	$9
Medium	0.4	$4
Bad	0.3	-$1
		Expected CF

Expected CF =

	T=0	T=1	T=2	T=3
CF

NPV of Project =

What can you conclude regarding this project?