Expected Net Present Value

Problem

Given:

A risky project costs $20 million, which would be paid in year 0
If the project succeeds, it will produce $5 million of benefits every year starting in year 11
If the project fails, it will produce no benefits
The chance of success is 60%
The interest rate is 5%

Determine:

The expected net present value of the project.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/08/2011