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:

Loss

A financial condition where costs exceed revenues, resulting in a negative profit.

Profit Lost

Refers to the potential earnings that were not realized due to missed or unrealized opportunities.

Sacks of Coffee

Units of measurement used in the coffee industry to quantify large quantities of coffee beans, typically weighing 60 kg each.

Farmer Produces

"Farmer produces" implies the agricultural output generated by farmers, including crops, livestock, and other products, through their farming activities.