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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › 122 BPP

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- February 18, 2024 at 12:04 pm #700593
An investment project has a cost of $12,000, payable at the start of the first year of operation. The possible future cash flows arising from the investment project have the following present values and associated probabilities:

PV of Year 1 cash flow

Probability

PV of Year 2 cash flowProbability

$

$

16,000

0.15

20,000

0.75

12,000

0.60

(2,000)

0.25

(4,000)

0.25

What is the expected value of the net present value of the investment project (to the nearest $100)?

how do we attempt this ? we havent done this type of question , i looked at the answer but i didnt understand

February 18, 2024 at 6:55 pm #700626Tot c/f Joint prob EV of cash flow

36,000 0·1125 4,050 which is . (16000 + 10000) * (0.15*0.75)

14,000 0·0375 525. Is (16000-2000) * (0.15*0.25)

32,000 0·4500 14,400. …..You keep going with this

10,000 0·1500 1,500.

16,000 0·1875 3,000

(6,000) 0·0625 (375)Then sun up the EV’s

23,100Less initial investment (12,000)

EV of the NPV

11,100 - AuthorPosts

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