The NPV of a Project Based on Forecasted Cash Flows

question 65

Essay

The NPV of a project based on forecasted cash flows is $1 000,000.There is a 40% probability that cash flows from the project will be seriously reduced because competitors will enter the market.In this case, if the company did nothing, the NPV would be $500,000.The project can also be abandoned after two years and NPV will be $100,000.What is the expected NPV of the project when the option to abandon is considered.Should the projected be accepted?

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Definitions:

Consensus

A general agreement among the members of a group or the outcome of that agreement.

Decision

The act or process of making a choice or judgment after considering different courses of action.

Conflict

A situation where there are incompatible interests, beliefs, or objectives between two or more parties, leading to a disagreement or dispute.

Group Decision

The outcome or resolution arrived at by a group of individuals through a deliberative process.