Determine expected value of the investment payoff

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1. You have invested in a project that has the following payoff schedule:

Payoff Probability of Occurrence
$40 .15
$50 .20
$60 .30
$70 .30
$80 .05

What is the expected value of the investment's payoff? Show all formulas along with calculations (Round to the nearest $1).

A) $70
B) $60
C) $59
D) $65

2. Analysts expect a project to generate EBIT of $500,000 per year for 5 years. Depreciation expense is expected to be $150,000 per year and the corporation's tax rate is 40%. The project will require an increase in net working capital of $50,000 in year one and a decrease in net working capital of $25,000 in year five. What is the free cash flow from the project in year one? Show all formulas along with calculations.

A) $250,000
B) $450,000
C) $400,000
D) $100,000

 

Reference no: EM1355995

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