30. The Fair Fax Company is attempting to decide whether or not to invest in a project that requires an initial outlay of Rs 3.4 lakhs. The cash flows of the project are known to be made up of two parts, one of which varies independently over time and the other one which displays perfect positive correlation.

The cash flows for the six-year life of the project are:

Find out the expected value of the NPV and its standard deviation, using a discount rate of 15%. Also find the probability that the project will be successful. What is the value of its EVPI?

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Year 'Perfectly correlated' component 'Independent' component Mean Standard deviation Mean Standard deviation 1 Rs 40,000 Rs 4,400 Rs 42,000 Rs 4,000 2 50,000 4,500 50,000 4,400 3 48,000 3,000 50,000 4,800 4 48,000 3,200 50,000 4,000 5 55,000 4,000 52,000 4,000 6 60,000 4,000 52,000 3,600