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M Inc asks you to perform a feasibility study of a new video game that requires an initial investment of $8 million.M Inc. expects a total annual operating cash flow of $1.5 million for the next 10 years. The relevant discount rate is 10 percent. Cash flow occur at year-end. After one year, the estimate of remaining annul cash flows will be revised wither upward to 2.75 million or downward to $345,000. Each revision has an equal probability of occurring. At that time, the video game project van be sold for $3.1 million. What is the revised NPV given that the firm can abandon the project after one year? Please show the work.

A. $1,986,863.22

B. $1,971,507.04

C. $1,216,850.66

D. None of the above

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91790804

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