Net after-tax cash flows and probabilities

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Use the following information for Question :

The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process:

Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter's cost of capital for an average-risk project is 10%.

Net After-Tax Cash Flows

Year                       P = 0.2                   P = 0.6                   P = 0.2

0                              -$100,000            -$100,000            -$100,000

1                              20,000                   30,000                   40,000

2                              20,000                   30,000                   40,000

3                              20,000                   30,000                   40,000

4                              20,000                   30,000                   40,000

5                              20,000                   30,000                   40,000  

5*                           0                              20,000                   30,000

Q. Assume that the project has average risk. Find the project's expected NPV. (Hint: Use expected values for the net cash flow in each year.)

Reference no: EM131071787

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