Johnson Ltd determined that the net present value of an investment in technological improvements at its plant in France would be €10,000,000 if pending litigation was resolved in the company's favor and would be €2,000,000 if the courts ruled against the company. Johnson's attorneys in France assessed the probability of a favorable ruling at 70%. What is the expected net present value of the project?

Question

Quizplus · Accepted Answer

The expected net present value (NPV) is calculated by multiplying each outcome by its probability and summing the results: (0.7 * €10,000,000) + (0.3 * €2,000,000) = €7,000,000.

Johnson Ltd Determined That the Net Present Value of an Investment