Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent.
-The expected net present value of project A if the outcomes are equally probable and the project has five-year life is ________. (See Table 12.1)

Question

Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent. 
-The expected net present value of project A if the outcomes are equally probable and the project has five-year life is ________. (See Table 12.1)

Quizplus · Accepted Answer

The expected net present value (NPV) is calculated by taking the average of all possible outcomes, weighted by their probabilities. If the outcomes are equally probable, the NPV is the simple average of the given values.

Table 12.1 A Corporation Is Assessing the Risk of Two Capital Budgeting