Calculate the projects expected npv

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Reference no: EM132881084

Work Station is a relatively small company and would be seriously damaged by any project that lost more than $1.5 million. The firm's cost of capital is 14%. Assume Work Station Inc. has an abandonment option at the end of the first year under which it will recover $5 million of the initial investment in year 2.

a)Develop a probability distribution for NPV based on the initial forecast. In other words, calculate the project's NPV along each path of the decision tree and the associated probability. Enter your answers for NPV in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200. Round your answers for NVP to one decimal place. Use a minus sign to indicate a negative NPV. Do not round intermediate calculations. Round PVF values in intermediate calculations to four decimal places. Round your answers for probability to two decimal places.
NPV ($000) Probability
path 1 $ ______
path 2 $ ______
path 3 $ _______
path 4 $ _______

b) Calculate the project's expected NPV. Enter your answer in thousands. For example, an answer of $1.2 thousand should be entered as 1.2, not 1,200. Round your answer to one decimal place. Do not round intermediate calculations. Round PVF values in intermediate calculations to four decimal places.

Reference no: EM132881084

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