Whats the expected npv for the project

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Reference no: EM133379774

Question: William and Sons is considering a project with the following characteristics:

The initial outlay is $155,000.
The project life is three years.
The annual after-tax operating cash flows have a 50% probability of being $25,000 per year and a 50% probability of being $75,000 per year.
At the end of the first year, all parties will find out whether the project was a success (cash flow $75,000) or a failure (cash flow $25,000).
The salvage value at termination is zero, and the required rate of return is 11%.

The company has the option of abandoning the project after one year, at which point it would have a salvage value of $120,000. What's the expected NPV for the project considering the abandonment strategy?

Reference no: EM133379774

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