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Problem:

A firm is considering investing $10 million today to start a new product line. The future of the project is unclear however and depends on the state of the economy. The project will last 5 years. The yearly cash flows for the project are shown below for the different states of economy.

Required:

What is the expected NPV for the project if the cost of capital is 12%?

Note: Please explain comprehensively and give step by step solution.

Project	chance of	yearly
Outcome	outcome	cash flow
Good	25%	$8.00
Average	50%	$3.00
Bad	25%	($2.00)

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91149451

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