A company has made following estimates if the CFAT of the proposed project. The company uses decision tree analysis to get clear picture of project's cash inflow. The project cost is 1,50,000 and the expected life of the project is 2 years. The net cash inflows are: In Year 1, there is 0.4 probability that CFAT will be ` 90,000 and 0.3 probability that CFAT will be 50,000 and 0.3 that CFAT will be 60000 .The probabilities assigned to CFAT for the Year 2 are as follows: If CFAT is 90,000= 30,000-0.2, 40,000- 0.4 and 35,000-0.4. If CFAT is 50,000= 40000-0.4, 50000-0.4,60000-0.2. If CFAT is 60,000= 70000-0.3, 50000-0.3,80000-0.4. Evaluate the proposal using decision tree if COC is 12%.

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To evaluate the proposal using decision tree analysis we will calculate the present value of the cas... View the full answer