Manufacturing project that requires investment

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Reference no: EM132061033

You have a manufacturing project that requires an investment of $18 million over one year after which you estimate a 25% chance of aborting at zero extra cost (and no profit) and an 75% chance of further development over two years at a cost of a further $25 million. At this point you estimate a 65% chance of making net profit of $130 million, a 20% change of making a net profit of $70 million and a 15% chance of making only $25 million. Your discount rate is 7%. Create a decision tree that illustrates these choices and calculate the NPV given the assumptions in the question.

Reference no: EM132061033

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