Your firm is considering investing in a new project.If the economy is strong (30% probability),you expect an NPV of $500,000; if the economy is normal (50% probability),you expect an NPV of $400,000; and if the economy is weak (20% probability),you expect an NPV of $300,000.What is the expected NPV of the project?

Question

Quizplus · Accepted Answer

The expected NPV is calculated by multiplying each NPV by its probability and summing the results: (0.3 * $500,000) + (0.5 * $400,000) + (0.2 * $300,000) = $410,000.

Your Firm Is Considering Investing in a New Project