Question
Weston Clothing Company is considering manufacturing a new style of shirt with an initial investment cost of $1,000,000. The CFO projects that there is a
Weston Clothing Company is considering manufacturing a new style of shirt with an initial investment cost of $1,000,000. The CFO projects that there is a 20% chance that the shirts will be a hit, resulting in $800,000 incremental cash flows for the next 3 years; a 60% chance that the shirts will be moderately popular, resulting in $520,000 incremental cash flows for the next 3 years; and a 20% chance that the shirts will be a unpopular, resulting in -$200,000 incremental cash flows for the next 3 years. Assume the project has a 11.5% cost of capital and no salvage value. What is the project's expected NPV?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the expected Net Present Value NPV of the project we need to follow several steps Step 1 Calculate the NPV for each scenario For each sce...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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