Problem 12-6

Sanville Quarries is considering acquiring a new drilling machine that is expected to be more efficient than the current machine. The project is to be evaluated over four years. The initial outlay required to get the new machine operating is $675,000. Incremental cash flows associated with the machine are uncertain, so management developed the following probabilistic forecast of cash flows by year ($000). Sanville's cost of capital is 11%.

Year 1	Prob	Year 2	Prob	Year 3	Prob	Year 4	Prob
$150	.30	$200	.35	$350	.30	$300	.25
175	.40	210	.45	370	.25	360	.35
300	.30	250	.20	400	.45	375	.40

Calculate the project's best NPV. Round the answer to the nearest whole dollar. Enter your answer in dollars and not in thousands of dollars. For example, an answer of $1 thousand should be entered as 1,000 not 1. $ What is the probability of best NPV? Round the answer to five decimal places. Calculate the project's worst NPV. Round the answer to the nearest whole dollar. Enter your answer in dollars and not in thousands of dollars. For example, an answer of $1 thousand should be entered as 1,000 not 1. $ What is the probability of worst NPV? Round the answer to five decimal places.

What is the value of the most likely NPV outcome? Round the answer to the nearest whole dollar. Enter your answer in dollars and not in thousands of dollars. For example, an answer of $1 thousand should be entered as 1,000 not 1. [Hint: Dont use the middle value for each year. Rather, calculate the expected value of each years cash flow.] $