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You are considering a 6-year project that requires an initial investment of $2,000,000. The project...

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Accounting

You are considering a 6-year project that requires an initial investment of $2,000,000. The project will generate the following net cash flows:

Year

Good

Average

Poor

1

$400,000

$350,000

$300,000

2

$450,000

$375,000

$325,000

3

$500,000

$400,000

$350,000

4

$550,000

$425,000

$375,000

5

$600,000

$450,000

$400,000

6

$650,000

$475,000

$425,000

Probabilities: Good (40%), Average (45%), Poor (15%)

Requirements:

(a) Calculate the expected net cash flow for each year. (b) Determine the discount rate using a WACC of 8%. (c) Compute the NPV of the project. (d) Should you invest in this project?

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