Question
Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities: Year Prob=0.2 Prob=0.6 Prob=0.2 0 -$100,000 -$100,000 -$100,000 1 $20,000
Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities: Year Prob=0.2 Prob=0.6 Prob=0.2 0 -$100,000 -$100,000 -$100,000 1 $20,000 $30,000 $40,000 2 $20,000 $30,000 $40,000 3 $20,000 $30,000 $40,000 4 $20,000 $30,000 $40,000 5 $30,000 $40,000 $50,000 e. Assume that Heywood's managers judge the project to have higher-than-average risk. Furthermore, the company's policy is to adjust the corporate cost of capital up or down by 3 percentage points to account for differential risk. Is the project financially attractive?
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