Question
Consider the following project data: A Shs. 0.6 Million feasibility study will be conducted at t=o. if the study indicates potential, the firm will spend
Consider the following project data: A Shs. 0.6 Million feasibility study will be conducted at t=o. if the study indicates potential, the firm will spend Shs. 3 million at t= 1 to build a prototype. The best estimate is that there is an 80% chance that the study will indicate potential and 20% chance that it will not. If reception of the prototype is good, the firm will spend Shs. 90 million at t=2 to build a production plant. The best estimate is that there is a 70% chance that the prototypes reception will be poor. If the plant is built, there is a 60% chance of a t=3 cash inflow at t=3 of Shs. 84 million, there are 30% and 70% chance of Shs. 48 million and Shs. 27 million inflows respectively at t=4. If the inflow at t=3 is shs. 45 million, thre are 80% and 20% chances of Shs. 75 million and Shs. 60 million inflows respectively at t=4. The plant has a salvage value of shs. 12 million at t
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started