The ABC Company has gathered the following information about the cash flows associated with a capital budgeting opportunity. The Project will cost $10,000,000 to implement, and has a three year estimated economic life.

There is a 50% probability that the economy will be average during the first year of the project, a 30% chance it will be better than average and a 20% chance it will be worse than average. If the economy is average for the first year, there is a 60% chance it will be average in year 2, a 30% chance it will be better than average and a 10% chance it will be below average. If the economy is above average during year I, there is a 50% chance it will be above average during year 2, a 30% chance it will be average and

a 20% chance it will be worse than average. If the economy is below average during the first year, there is a 40% chance it will be below average the second year, a 40% chance it will be average and a 20% chance it will be better than average.

If the economy is average for year 2, there is a 65% chance it will be average in year 3, a 30% chance it will be better than average and a 5% chance it will be below average. If the economy is above average during year 2, there is a 60% chance it will be above average during year 3, a 30% chance it will be average and a 10% chance it will be worse than average. If the economy is below average during the second year, there is a 50% chance it will be below average the second year, a 40% chance it will be average and a 10% chance it will be better than average.

If the economy is average during a year the net cash flow for the year will be $4,000,000. If the economy is better than average during a year the net cash flow for the year will be $5,200,000, and if

the economy during a year is worse than average, the net cash flow for the year will be $3,100,000.

What are the annual net cash flows that should be used to evaluate the opportunity?

What is the internal rate of return for the proposal?

The ABC Company has gathered the following information about the cash flows associated with a capital budgeting opportunity. The Project wilt cost $10,000,000 to implement, and has a three year estimated economic life.

There is a 50% probability that the economy will be average during the first year of the project, a 30% chance it will be better than average and a 20% chance it will be worse than average. If the economy is average for the first year, there is a 60% chance it will be average in year 2, a 30% chance it will be better than average and a 1096 chance it will be below average. If the economy is above average during year I, there is a 50% chance it will be above average during year 2, a 30% chance it will be average and a 20% chance it will be worse than average. If the economy is below average during the first year, there is a 40% chance it will be below average the second year, a 40% chance it will be average and a 20% chance it will be better than average.

If the economy is average for year 2, there is a 65% chance it will be average in year 3, a 30% chance it will be better than average and a 5% chance it will be below average. If the economy is above average during year 2, there is a 60% chance it will be above average during year 3, a 30% chance it will be average and a 10% chance it will be worse than average. If the economy is below average during the second year, there is a 50% chance it will be below average the second year, a 40% chance it will be average and a 10% chance it will be better than average.

If the economy is average during a year the net cash flow for the year will be $4,000,000. If the economy is better than average during a year the net cash flow for the year will be $5,200,000, and if

the economy during a year is worse than average, the net cash flow for the year will be $3,100,000.

What are the annual net cash flows that should be used to evaluate the opportunity?

What is the internal rate of return for the proposal?