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What is the expected net present value of the investment

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Reference no: EM133176022

Question - Precise Power Piping (PPP) is a small supplier of piping material in South Dakota. The company is considering a major investment in new machinery because it expects to benefit from the possible construction of the Keystone XL Pipeline. Despite the recent executive order from the U.S. president, PPP believes there is still a 50:50 chance that the pipeline will be built. Specifically, the outcome of a pending lawsuit will determine the fate of PPP's new investment.

The new machinery will cost $900 thousand in year 0. If the court decision leads to the pipeline being built, then the company will earn additional $700 thousand in years 1, 2, and 3. If the court upholds the decision of the president, then PPP will earn only additional $300 thousand in each of those three years (as a result of the investment).

What is the expected net present value of the investment in new machinery? PPP's WACC is 12%. Provide your answer in thousand dollars.

Reference no: EM133176022

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