Scenario analysis for a proposed new project has resulted in the following: $\begin{array}{lll}
& \text { NPV } & \text { Probability } \
\text { Worst case } & (\$ 1,000) & .2 \
\text { Most likely case } & \$ 300 & 3 \
\text { Rest case. } & \$ 600 & 5
\end{array}$ An abandonment option would change the NPV in the worst case to ($500). The project's expected NPV if the abandonment option is included is:

Question

Quizplus · Accepted Answer

The expected NPV with the abandonment option is calculated as follows:  Expected NPV = (Probability of Worst Case * NPV with Abandonment) + (Probability of Most Likely Case * NPV) + (Probability of Best Case * NPV)  = (0.2 * 500) + (0.3 * 300) + (0.5 * 600)  = 100 + 90 + 300  = $290.

Scenario Analysis for a Proposed New Project Has Resulted in the Following