The project defined by the following decision tree has a required discount rate of 15 percent.
What is the Time 0 net present value of a successful test and investment?

Question

The project defined by the following decision tree has a required discount rate of 15 percent. 
What is the Time 0 net present value of a successful test and investment?

Quizplus · Accepted Answer

NPV₁ = -$100,000,000 + $66,000,000[(1 - 1/1.15⁴)/.15] = $88,428,571.94NPV₀ = -$20,000,000 + .6 × ($88,428,571.94/1.15)+ (.4 × $0)= $26,136,646.23,or $26,136,646 rounded

The Project Defined by the Following Decision Tree Has a Required