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Tree Analysis
Given the following decision tree analysis (all cash flows), what is the project's expected NPV at a discount rate of 10%?
_________________
If we could abandon the project after year end 3 if the cash inflows were -400, what would the expected NPV
be? _______________________
FIGURE
(CASH FLOW in '000,000)
t=0 t=1 t=2 t=3 t=4 NPV PROB CONTRI
.25 700 700 539.2 .105 ____________56.62_
.6 (550) .50 500 500______________________________
.25 (400) (400)_______________________________
.7 (8)
.4 stop_______________________________-10_____.28___________ -2.8__
(3)
.3 stop______________________________________________-3__________________________
TOTAL
Answer & Explanation
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