Economists at PHE Llc Estimate a 20% Probability of a Recession

question 36

Multiple Choice

Economists at PHE Llc estimate a 20% probability of a recession next year, a 50% probability of an average economy, and a 30% probability of a rapid expansion. If there is a recession, the NPV of project O will be $20 million; if the economy is average, it will be $45 million and in case of a rapid expansion, it will be $75 million. What is the expected NPV of the project?

• A) $57.5 million
• B) $49 million
• C) $46.67 million
• D) $45 million

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Definitions:

Account Titles

Names given to various accounts used in accounting to classify and organize financial transactions.

Trial Balance

A bookkeeping worksheet listing the balance of all ledgers for checking the balance of debits and credits, serving as a preliminary step to financial statements preparation.

Recording Process

The systematic procedure of capturing financial transactions in accounting records.