Scenario 15.6:
Consider the following decision that Eileen has to make:
Eileen is considering buying a $4000 computer for her daughter. Eileen hopes that with the computer her daughter's schoolwork will improve so much that in two years time she will be offered a full-ride scholarship to college. The scholarship is paid for four years and is valued at $25,000 per year. Even with the computer the probability that the scholarship will be awarded is 10%.
-Refer to Scenario 15.6. The expected NPV of the computer purchase is approximately:

Question

Quizplus · Accepted Answer

The expected NPV of the computer purchase can be calculated as follows:
Expected NPV = (0.1 x $25,000 x 4 years) - $4000
Expected NPV = $10,000 - $4000
Expected NPV = $6000
Therefore, the expected NPV of the computer purchase is approximately $6,000. Since it is positive, it may be a good decision to purchase the computer. However, it is important to note that there are other factors to consider, such as the potential for other investments with higher expected NPV or the possibility that the scholarship may be awarded without the use of the computer.

Scenario 15.6: Consider the Following Decision That Eileen Has to Make