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 is shs. 84 million, here 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=4. 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 is shs. 84 million, here 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=4.
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