A new startup is considering investing in a software development project that will take 3 years to
Question:
A new startup is considering investing in a software development project that will take 3 years to complete. The project will require an initial investment of $1 million and is expected to generate cash flows of $600,000, $800,000, and $1,000,000 at the end of years 1, 2, and 3, respectively. The startup has determined that the project's success is uncertain and has estimated the probabilities of three possible outcomes for the project: a 30% chance of generating high profits of $2 million, a 50% chance of generating moderate profits of $1 million, and a 20% chance of generating low profits of $500,000. If the startup uses a discount rate of 10%, what is the expected net present value (ENPV) of the project?
Accounting Principles
ISBN: 978-1118875056
12th edition
Authors: Jerry Weygandt, Paul Kimmel, Donald Kieso