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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