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

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?

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The detailed answer for the above question is provided below To calculate the expected net present value ENPV of the project we need to calculate the expected cash flows for each year and the probabil... View full answer

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