Question: please explain with the equations for parts b, c, and d. thank you Decision tree 1. Teletech Co. wants to use a decision tree in

 please explain with the equations for parts b, c, and d.

please explain with the equations for parts b, c, and d. thank you

Decision tree 1. Teletech Co. wants to use a decision tree in evaluating a venture capital investment in cable TV. The projected investment has a life of three years, and the associated after-tax cash flows ($000) and probabilities are as follows: Year 1 Year 2 Year 3 Cash flow: $100 (P=0.5) or If cash flow in year 1 = $100, If cash flow in year 2 = $120, $200 (P=0.5) Year 2 cash flow = $120 can sell the investment for (P=0.6) or $95 (P=0.4). either $350 (P=0.7) or $250 If cash flow in year 1 = $200, (P=0.3). Year 2 cash flow =$250 If cash flow in year 2 = $95, (P=0.5) or $210 (P=0.5) can sell the investment for either $125 (P=0.6) or $75 (P=0.4). If cash flow in year 2 = $250, can sell the investment for either $475 (P=0.8) or $275 (P=0.2). If cash flow in year 2 = $210, can sell the investment for either $140 (P=0.5) or $110 (P=0.5). The initial investment for the firm is $200,000. The firm's cost of capital is 10 percent. a. Construct a decision tree with expected cash flow of each alternative. See notes. b. What is the expected NPV of the best possible outcome? What is its probability? $453,268 0.25 c. What is the expected NPV of the worst possible outcome? What is its probability? $106,161 0.2 d. Should Teletech make the investment? Why or why not? Average NPV = 269,947 >0 Yes. Decision tree 1. Teletech Co. wants to use a decision tree in evaluating a venture capital investment in cable TV. The projected investment has a life of three years, and the associated after-tax cash flows ($000) and probabilities are as follows: Year 1 Year 2 Year 3 Cash flow: $100 (P=0.5) or If cash flow in year 1 = $100, If cash flow in year 2 = $120, $200 (P=0.5) Year 2 cash flow = $120 can sell the investment for (P=0.6) or $95 (P=0.4). either $350 (P=0.7) or $250 If cash flow in year 1 = $200, (P=0.3). Year 2 cash flow =$250 If cash flow in year 2 = $95, (P=0.5) or $210 (P=0.5) can sell the investment for either $125 (P=0.6) or $75 (P=0.4). If cash flow in year 2 = $250, can sell the investment for either $475 (P=0.8) or $275 (P=0.2). If cash flow in year 2 = $210, can sell the investment for either $140 (P=0.5) or $110 (P=0.5). The initial investment for the firm is $200,000. The firm's cost of capital is 10 percent. a. Construct a decision tree with expected cash flow of each alternative. See notes. b. What is the expected NPV of the best possible outcome? What is its probability? $453,268 0.25 c. What is the expected NPV of the worst possible outcome? What is its probability? $106,161 0.2 d. Should Teletech make the investment? Why or why not? Average NPV = 269,947 >0 Yes

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