Question
You are considering a project with an opportunity cost of 10% and that offers up the following two possible payouts based on your ability to
You are considering a project with an opportunity cost of 10% and that offers up the following two possible payouts based on your ability to market the product: In the optimistic state you expect the following payouts, -$4,552, $8,000, $8,000. Based on your pessimistic expectations you expect the following -$4,552, -$500, -$10,000. The cash flows fall at time period 0, 1 and 2. Your sense is that there is a 40% chance things will turn out well and a 60% chance things will turn out poorly. What is your expected NPV if you are able to abandon the project after year one?
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