Use the following information for Question 4:
The staff of Porter Manufacturing has estimated the following net
Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an
Net |
| ||
Year | P = 0.2 | P = 0.6 | P = 0.2 |
0 | −$100,000 | −$100,000 | −$100,000 |
1 | 20,000 | 30,000 | 40,000 |
2 | 20,000 | 30,000 | 40,000 |
3 | 20,000 | 30,000 | 40,000 |
4 | 20,000 | 30,000 | 40,000 |
5 | 20,000 | 30,000 | 40,000 |
5* | 0 | 20,000 | 30,000 |
4.Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.)
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