Question
The cash flows of a two-year project when demand turns out to be high and when demand turns out to be low are presented below.
| The cash flows of a two-year project when demand turns out to be high and when demand turns out to be low are presented below. The probability that demand will be high is 50% and the probability that demand will be low is 50%. Assume that 10% is the appropriate discount rate. | ||||
| Cash flow if demand is "high" | Cash flow if demand is "low" |
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| Year 0 | -$100 | -$100 |
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| Year 1 | $100 | $50 |
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| Year 2 | $100 | $50 |
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If demand turns out to be low,, the firm has the option to stop the project at the end of Year 1 (after the Year 1 cash flow is realized) and sell the projects equipment for an after-tax salvage value of $75. What is the expected NPV considering this abandonment option? Round your final answer to the nearest dollar.Choose the best answer without decimals...
| a. | $44 | |
| b. | $24 | |
| c. | $14 | |
| d. | $74 |
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Essentials Of Health Care Finance
Authors: William O. Cleverley, Andrew E. Cameron
6th Edition
0763742368, 978-0763742362
