Question

1. Possible net present values and associated probabilities for a new investment are as follows. What is the probability of a positive net present value?

NPV                                                                                -150               75                60              160            250             330

Probability                                                                     .10                 .35              .15             .10             .15              .15

What is the probability of a positive net present value? ___________________ What is the expected value? _____________

What is the median? ____________________What is the mode? ___________________

Answer 1

(a)

NPV

-150

75

60

160

250

330

Probablity of positive value = positive values / total values

= 6 / 7

= 0.86

(b) EXPECTED VALUE = 123.25

EXPECTED VALUE = NPV x corresposning probablity

NPV	PROBABLITY	EXPECTED VALUE
-150	0.1	-15
75	0.35	26.25
60	0.15	9
160	0.1	16
250	0.15	37.5
330	0.15	49.5
		123.25

(c)

NPV	PROBABLITY	EXPECTED VALUE	ascendimg order
-150	0.1	-15	-15
75	0.35	26.25	9
60	0.15	9	16
160	0.1	16	26.25
250	0.15	37.5	37.5
330	0.15	49.5	49.5

median = 3rd term + 4th term / 2

= 16 + 26.25 / 2

= 21.125

(d) MODE CANNOT BE DETERMINED EVERY VALUE HAS SAME FREQUENCY