Question: 5. Consider the following project data A kshs 2 million feasibility study will be conducted at t=0 if the study indicates potential, the firm will

5. Consider the following project data A kshs 2 million feasibility study will be conducted at t=0 if the study indicates potential, the firm will spend Kshs 10 million at t=1 to build a prototype. The best estimate is that there is an 80% chance that the study will indicate potential and 20% chance that it will not. If reception of the prototype is good the firm will spend Kshs 350 M to build a production plant at t=2. The best estimate is that there is a 70% chance of a t=3 cash inflow of kshs 300 M and a 40% chance of kshs 150 million cash inflow. If the inflow at t=3 cash inflow of kshs 300M and a 40% chance of kshs 150M cash inflow, if the inflow at t=3 is Kshs 300M, there are 30 % and 70% chances of Kshs 160M and Kshs 90M inflows respectively at t=4. If the inflow at t=3 is Kshs 150 M, there are 80% and 20% chances of Kshs 210M and Kshs 140 M inflows respectively at t=4. The plant has a salvage value of Kshs 50 M at t=5 If the appropriate cost of capital is 15% what is the projects expected NPV?

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