26. An investment proposal involves an outlay of Rs 2,20,000. The proposal is expected to have a life of 3 years only, and is likely to generate the following cash inflows at the year-ends.

(a) Determine the expected cash flow for each of the 3 years and its standard deviation.

(b) Using a 12% discount rate, calculate the expected net present value of the project.

(c) Determine the risk associated with the project as measured by the standard deviation, assuming that the cash flows of the various years are independent of each other.

(d) Assuming the NPV is distributed normally, determine the probability that the project shall have a negative NPV.

(e) Obtain the EVPI of the project.

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Year 1 Year 2 Year 3 Cash inflow (Rs) Prob. Cash inflow (Rs) Prob. Cash inflow (Rs) Prob. 50,000 0.2 70,000 0.2 1,40,000 0.3 80,000 0.7 1,00,000 0.5 1,50,000 0.3 1,20,000 0.1 1,30,000 0.3 1,62,500 0.4