Question
The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost
The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porters cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 $100,000 $100,000 $100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 4. Assume that the project has average risk. Find the projects expected NPV. (Hint: Use expected values for the net cash flow in each year.)
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