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mcf

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Problem for you.

You have a project that could pay $10mm in 5 years. It requires a $100,000 investment today. The probability of reaching success in year five is 25%. The required rate of return is 12%?

What is the NPV of the project and should you accept it?
 
mcf Wrote:
-------------------------------------------------------
> Problem for you.
>
> You have a project that could pay $10mm in 5
> years. It requires a $100,000 investment today.
> The probability of reaching success in year five
> is 25%. The required rate of return is 12%?
>
> What is the NPV of the project and should you
> accept it?


easy

prob of S = .25
prob of F = .75

do .75 (-100000) + .25(NPV in calc with 100000 being CF 0 and CF 1-4 $0 and CF 5 = 10 mill and I = .25)

you will get it, i am leaving crib now to run to SBUX

bring em on



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 10:13PM by daj224.
 
.25*10million/(1.12)^5 + .75(-10k)

Can you please let me know if that's the answer?
 
npv if success = -100000 + 10,000,000/(1.12)^5 = 5574268.56

npv if fail = -100000

total npv = .75*(-100000) + .25*(5,574,269.56) = 1,318,567.14
 
918,567 accept

Oops, I meant 1,218,567 accept



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 10:19PM by amberpower.
 
Expected payoff = 10,000,000 *25% = 2,500,000 in 5 years
PV of payoff today = 1,418,567
NPV 1,418,567 - 100,000 = u know this one
 
Hmmm, I lost 100K somewhere.

ETA, found it!



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 10:23PM by amberpower.
 
Problem for you.

You have a project that could pay $10mm in 5 years. It requires a $100,000 investment today. The probability of reaching success in year five is 25%. The required rate of return is 12%?

What is the NPV of the project and should you accept it?

----------

Most people were right on the money.

PS = .25
PF = .75

NPV of S = -100,000 + (1,000,000/(1.12)^5)) = 5,574,269
NPV of F = -100,000

Expected NPV = .25 * 5,574,269 + .75 * -100,000 = $1,318,567

Accept Project
 
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