Question

Please complete the table of net present values below:

Competitor        Weak Normal Strong

               Response         Economy Economy            Economy

                    Yes              -$284,325        -$181,155             -$55,733

                     No              -$235,775          -$63,824             $142,516

Assume that the investment committee determined the probabilities below:

Probability the competitor will response 30%, will not respond 70%

Probability of each economic state over the six-year horizon Weak – 5%., Normal – 80% and Strong 15%

Please complete the table of joint probabilities (by multiplying the economy probability by the competitor response probability) below and then calculate the expected net present value.

Competitor        Weak Normal               Strong

               Response         Economy Economy            Economy

                    Yes              _______%           ______%         _______%

                     No              _______%           ______%         _______%           

The expected net present value is ____________%.

      

Answer 1

Calculation of joint probabilities and expected net present value for project is shown below

Thus, expected net present value is -$79,279.45