The Basalt Corporation is considering a new venture. Management has made the following cash flow estimates for the project over the next three years under assumptions reflecting best, worst, and most likely scenarios in each year. The expected initial outlay (C0) is $1,000, and the cost of capital is 12%. The following probability distribution for best, worst and most likely conditions is constant from year to year: 

Worst case - C1 = $200 C2 = $300 C3 = $400 

Most likely - C1 = $300 C2 = $400 C3 = $500 

Best Case - C1 = $400 C2 = $500 C3 = $600 

Best case 25% Most likely case 50% Worst case 25% 

Calculate the NPVs of the overall best, most likely, and worst case scenarios and the probability of each.

Answer rating: 100% (QA)

NPV for best scenario 1000 400112 5001122 6001123 ... View the full answer