Herman Co. is considering a four-year project that will require an initial investment of $7,000. The base-case cash flows for this project are projected to
Herman Co. is considering a four-year project that will require an initial investment of $7,000. The base-case cash flows for this project are projected to be $14,000 per year. The best-case cash flows are projected to be $21,000 per year, and the worst-case cash flows are projected to be $2,500 per year. The companys analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows. What would be the expected net present value (NPV) of this project if the projects cost of capital is 13%?
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