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Good-day Mr John.
I seem to be confused as to how the last column in Cooper Co (a) was arrived at in the suggested solutions. The column contains the NPV.
I also don’t know how a ii and iii answers were arrived at.For each of the possible outcome, the NPV is the PV of the year 1 flow plus the PV of the year 2 flow, less the initial investment of 3,500.
For part (ii) to get the probability of the NPV being negative we add up the probabilities of all the outcomes that give a negative NPV, from the table.
The most likely outcome is the one with the highest probability. The highest probably of the various outcomes is 0.30.
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