A concert promoter assesses that the probability of a concert being a success is 0.4. The initial cash cost to take out an option to organise the concert 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. The promoter can make a final decision at a later date before making any further payments. What is the expected NPV, using an options approach?

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The Answer of A concert promoter assesses that the probability of a concert being a success is 0.4. The initial cash cost to take out an option to organise the concert 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. The promoter can make a final decision at a later date before making any further payments. What is the expected NPV, using an options approach?

A Concert Promoter Assesses That the Probability of a Concert