Higgins Corp is considering enhancements at its Cut and Shoot (yes, there is such a place), Texas plant. This project will require an initial outlay of funds for equipment and building renovations of $1,300,000. In addition, the company will use a piece of land that they acquired 10 years ago at a cost of $500,000. It is estimated that the land could be sold today for $700,000. The expected operating net cash flows over the 10-year life of the project are: Year NCF Amount (includes salvage in year 10) 1 $150,000 2 225,000 3 300,000 4 450,000 5 550,000 6 500,000 7 450,000 8 400,000 9 150,000 10 800,000 (Note: The net cash flow shown in year 10 includes the after-tax salvage value recovered at the end of the project life.)

a. Compute the expected NPV of this project? (Use the CF functions of your calculator.) Higgins weighted cost of capital is 10.5 percent.

b. Higgins has asked its managers to assess the projects risk. They have estimated the standard deviation of the NPV is $150,000. What is the probability that this project will not enhance shareholder wealth?