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(Chapter 7) At Stage 2 of the decision tree it shows that if a project is successful, the payoff will be $106,000 with a 0.6
(Chapter 7) At Stage 2 of the decision tree it shows that if a project is successful, the payoff will be $106,000 with a 0.6 chance of occurrence. There is also the 0.4 chance of a -$48,000 payoff. Stage 2 is a year from now. The cost of the project is $40,000 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. Similar to quiz question.). O -$1,000 $4,400 $1,391.30 O $2,567.6 $38,608.7
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