Determine the projects expected cash flows

Reference no: EM133559967

Question: East Texas Telecom (ETT) is considering a project that costs $250 million and has an expected life of 3 years. The company is forecasting a 10 percent probability of excellent future conditions, in which case the project is expected to generate cash flows of $200 million per year. There is a 30 percent probability of good future conditions, in which case the cash flows are expected to be $150 million per year. There is a 30 percent probability of average future conditions, in which case the cash flows are expected to be $100 million per year. There is a 15 percent probability of below average future conditions, in which case the cash flows are expected to be $25 million per year. There is a 15 percent probability of bad future conditions, in which case the cash flows are expected to be $-25 million per year. ETT uses a 10 percent hurdle rate to evaluate projects like this. a. Determine the project's expected cash flows and its expected NPV. Would you recommend pursuing this investment opportunity?

Reference no: EM133559967

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