What is the Expected Net Present Value?

CORRECT TEXT

R plc is considering an investment of $1,100,000 in a new machine which is expected to have substantial cash inflows over the next five years.

The annual cash flows from this investment and their probability are shown below:

Annual cash flow ($) Probability

200,000 0.4

280,000 0.5

350,000 0.1

At the end of its five-year life, the asset is expected to sell for $100,000. The cost of capital is 5%.

What is the Expected Net Present Value?

Give your answer to the nearest whole $.

View Answer

Answer: $82295, $82550