A concert promoter assesses that the probability of a concert being a success is 0.4. The initial cash cost will be £50,000. A success will create a present value of all cash flows of £250,000 and a flop will lose £100,000. What is the expected NPV, using a conventional approach?

Question

Quizplus · Accepted Answer

The expected NPV is calculated as: (0.4 * £250,000) + (0.6 * -£100,000) - £50,000 = £100,000 - £60,000 - £50,000 = -£10,000.

A Concert Promoter Assesses That the Probability of a Concert