Decision D4, which has three possible alternativesx , y , or z must be made in year
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Decision D4, which has three possible alternatives—x , y , or z —must be made in year 3 of a 6-year study period in order to maximize the expected value of present worth. Using a rate of return of 15% per year, the investment required in year 3 and the estimated cash flows for years 4 through 6, determine which decision should be made in year3.
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Investment Cash flow, $1000 Required. S Years Outcome 3 46 probablity High 200,000 50 50 50 0.7 Low 40 30 20 0.3 High 75,000 30 40 50 0.45 D4 Low 30 30 30 0.55 High -350,000 190 170 150 0.7 Low -30-30 30 0.3
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