Determine the net present value of the profit

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Reference no: EM132031171

Question: A paving company is buying two pavement recycling machines for $400k each with a service life of 7 years. They are estimating that there are 3 possible levels of demand for this service, namely low, medium and high with probabilities of 0.2, 0.5 and 0.3, resulting in annual incomes of $100k, $160k and $200k, respectively. After the first year, they will have to make some decisions as shown on the following tree. Determine the probability that the net present value of the profit from this investment exceeds $300k. The annual rate is 5%.

Reference no: EM132031171

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