Question

Mcqs

1. What is the expected value of NPV(to the nearest dollar) for the following situation?

The firm expects an NPV of $10,000 if the economy is exceptionally strong (40% probability),

an NPV of $4,000 if the economy is normal (40% probability) and

an NPV of $2000 if the economy is exceptionally weak (20% probability).

Options for ANSWER:-

i. 5600

ii. 5200

iii. 3500

iv. 4000

Answer 1

The expected NPV;

$= 0.4(\$10,000) + 0.4(\$4,000) +0.2(-\$2,000)$

$= \$5,200$ .