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You are planning to undertake an investment that costs $17,000 today. Once implemented, you estimate a 0.6 probability that it will do really well and

  1. You are planning to undertake an investment that costs $17,000 today. Once implemented, you estimate a 0.6 probability that it will do really well and bring in cash flows of $7,000 per year, a 0.3 probability that it will do moderately well and bring in a cash flow of $4,000 per year, and a 0.1 probability that it will limp along and bring in a cash flow of $2,000 a year. The discount rate or the opportunity cost of other investments is 9%. A)What is the expected cash flow? B) The project has a life of 6 years, and at the end of 6 years, you plan to sell your plant and recover $3,000 as salvage value. Find the NPV of the project and state whether the project should be undertaken or not. Show your work clearly.

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