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Question 2 2.1 Matheba Construction is considering an investment of R3,000,000 can invest R1 000 000 in a new truck fleet to be used in
Question 2 2.1 Matheba Construction is considering an investment of R3,000,000 can invest R1 000 000 in a new truck fleet to be used in earthworks projects. Demand is expected to be such that there is an even chance that the new investment will produce either R600 000 or R3 000 000 in the first year. If demand is low in the first year, there is a 65% chance that the cash flow in the second year will remain R620 000, and a 35% chance that it will triple. If demand in the first year is high, there is a 33% chance that the cash flow in the second year will be R3 500 000, a 33% chance that it will remain unchanged and a 34% chance that it will slump to be R90 000. If the cost of capital is 12%, calculate the expected NPV of the investment. (13)
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