Question 2 (25 points): Calculate expected NPV for a min ROR 10% to evaluate the economic...

 

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Question 2 (25 points): Calculate expected NPV for a min ROR 10% to evaluate the economic potential of an energy project with the following estimated costs, revenues and success/failure rates. Is this investment economically satisfactory? . . . To lease the land at $300k at time zero To build and construct site for $600k by the end of year 1. It is considered 100% to happen. At the end of year 1, there is a 40% chance that project will be shelved with no salvage value and no liabilities. At the end of year 1, there is a 60% probability that the project will be given a go ahead with an additional $400k for project completions. Then two possible outcomes: . 40% probability to generate a net income of $550k per year for years 2-15 with an environmental remediation cost of $100,000 at the end of the project. . . 50% probability to generate a net income of $350k per year for years 2-15 with an environmental remediation cost of $100,000 at the end of the project. 10% probability to fail and sell at $350k at the end of year 2. Question 2 (25 points): Calculate expected NPV for a min ROR 10% to evaluate the economic potential of an energy project with the following estimated costs, revenues and success/failure rates. Is this investment economically satisfactory? . . . To lease the land at $300k at time zero To build and construct site for $600k by the end of year 1. It is considered 100% to happen. At the end of year 1, there is a 40% chance that project will be shelved with no salvage value and no liabilities. At the end of year 1, there is a 60% probability that the project will be given a go ahead with an additional $400k for project completions. Then two possible outcomes: . 40% probability to generate a net income of $550k per year for years 2-15 with an environmental remediation cost of $100,000 at the end of the project. . . 50% probability to generate a net income of $350k per year for years 2-15 with an environmental remediation cost of $100,000 at the end of the project. 10% probability to fail and sell at $350k at the end of year 2.

Answer rating: 100% (QA)

ANS WER The expected NP V for this project is 326 0 49 This investment is economically satisfactory ... View the full answer