Question
Calculate the expected net present value of a project which costs $155,000 at time zero, considering there is a 59% chance that the investment at
Calculate the expected net present value of a project which costs $155,000 at time zero, considering there is a 59% chance that the investment at time zero will be successful, which will require an additional investment of $150,000 at year one. There is an 80% chance of success of the year one investment yielding profits over a five year period equal to $175,000 per year. Failure at time zero will result in a 70% chance of abandonment cost of $100,000 and 30% chance of salvage at $80,000. Failure at year one will result in salvage of $160,000 at year two. Should this project be considered if the minimum rate of return is 15%? (30 points)
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