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MC Question 7

An investment project has a cost of $12,000, payable at the start of the first year of operation. The possible future cash flows arising from the investment project have the following present values and associated probabilities:
PV of 
Year 1 cash flow ($)
Probability PV of 
Year 2 cash flow ($)
Probability
16,000 0·15  20,000 0·75
12,000 0·60 (2,000) 0·25
(4,000) 0·25  

What is the expected value of the net present value of the investment project?

A. $11,850
B. $28,700
C. $11,100
D. $76,300