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For two mutually exclusive investments, the management of the company has developed cash flow estimates as pessimistic, most likely, and optimistic.

A B

Investment 5,500 5,500

Pessimistic 200 700

Most likely 800 800

Optimistic 1,400 900

Both projects have a life of 15 years. Cost of capital = 14 percent. Which project is more risky? Recalculate NPV if the probabilities of the three situations are 30 percent, 50 percent and 20 percent respectively.

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91972762

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