### Describe capital budgeting involves calculation

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Describe Capital budgeting involves calculation of net present value

Avanti, Inc. is considering investing in a new telephone product. There is a 30% chance that it will cost \$1 million to launch this new product. The probability is 70% that it will cost \$1.4 million at the initial state. Once the product is introduced, there is a 60% probability that it will generate \$1.2 million cash-flow every year for the next three years, and with probability 40% the cash-flow would be \$900,000 annually for three years. Avanti's cost of capital is 10.5%.

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