Solution-What is net present value will the project yield

What is net present value will the project yield

Reference no: EM132720127

Question - Moodle Ltd has an investment, requiring an outlay of N$40,000. The investment proposal is expected to have 2 years economic life with no salvage value. In year 1, there is 0.4 probability that cash inflow after tax will be N$25,000 and 0.6 probability that cash inflow after tax will be N$30,000. The probabilities assigned and cash inflows after tax for the year 2 are as follows:

The cash inflow year 1	N$25,000		N$30,000
The cash inflow year 2		Probability		Probability
	N$12,000	0.2	N$20,000	0.4
	N$16,000	0.3	N$25,000	0.5
	N$22,000	0.5	N$30,000	0.1

Moodle Ltd uses a 12% discount rate for this type of investment.

REQUIRED -

1. Construct a decision tree for the proposed investment project.

2. What is net present value of each outcome?

3. What is net present value will the project yield if worst outcome is realised and its probability of occurrence of the NPV?

4. What will be the best outcome and the probability of that occurrence?

5. Will the project be accepted?

Reference no: EM132720127

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What is net present value will the project yield

Reference no: EM132720127

Reference no: EM132720127

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