Question #1 The following question is an investment your firm would like to make. Based on a risk-free escalated dollar NPV calculation your company is considering doing the deal. However, in a recent meeting you brought up the subject of risk and are now responsible for risk adjusting the investment. Assume a 20% chance of failure after the time period zero investment, which would yield a clean-up cost of $200 in year one. Furthermore, assume a 10% chance of failure after the year one investment, which would result in a salvage value of $100 in year two. Calculate the Expected Net Present Value based on the probabilities provided. All cash flows are in escalated dollars. i* = 15% f = 3% -120 -400 200 200 200 200 200 200 200 0 1 2 3 4 5 6 7 8 Question #1 The following question is an investment your firm would like to make. Based on a risk-free escalated dollar NPV calculation your company is considering doing the deal. However, in a recent meeting you brought up the subject of risk and are now responsible for risk adjusting the investment. Assume a 20% chance of failure after the time period zero investment, which would yield a clean-up cost of $200 in year one. Furthermore, assume a 10% chance of failure after the year one investment, which would result in a salvage value of $100 in year two. Calculate the Expected Net Present Value based on the probabilities provided. All cash flows are in escalated dollars. i* = 15% f = 3% -120 -400 200 200 200 200 200 200 200 0 1 2 3 4 5 6 7 8