Question: A networking service company is examining two mutually exclusive projects. The probability distributions of annual cash inflows are presented below: Year 1 Year 2 Initial
A networking service company is examining two mutually exclusive projects. The probability distributions of annual cash inflows are presented below:
Year 1 Year 2
Initial Cash Conditional Cash
Probability Flow Probability Flow
0.30 $800 0.50 $900
0.50 $700
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0.40 $500 0.25 $800
0.50 $700
0.25 $600
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0.30 $200 0.60 $200
0.40 $100
If the risk-free rate is 4% and the company's required rate of return is 10%, calculate the expected NPV for the project. What is the probability that Treasury securities would be a better investment?
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