What is the expected net present value of the business

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Question - May acquire an existing business for $2 million. You are unsure of future demand. There is a 50% chance of high demand, in which case the present value of the business will be $3 million. There is a 30% chance of moderate demand, and the associated present value is $1.5 million. Finally, there is a 20% chance of low demand, in which case the present value is $1 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain.

Reference no: EM133169420

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