General Studies · Financial Management
A company is considering a one-year project (all flows at Year 1) that requires an immediate investment of $100,000. The project's success depends on two independent factors: Market Demand and Variable Material Costs. Market Condition | Probability | Contribution (excluding materials) - Strong: 0.6 probability, $200,000 - Weak: 0.4 probability, $120,000 Material Cost Condition | Probability | Total Material Cost - High: 0.7 probability, $80,000 - Low: 0.3 probability, $40,000 The company's cost of capital is 12%. What is the Expected Net Present Value (ENPV) and the probability that the project will have a negative NPV?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1ENPV: $42,400; Probability of negative NPV: 12%
- 2ENPV: $33,929; Probability of negative NPV: 28%✓
- 3ENPV: $50,000; Probability of negative NPV: 28%
- 4ENPV: $33,929; Probability of negative NPV: 0%
Correct answer
ENPV: $33,929; Probability of negative NPV: 28%
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