Share
Explore BrainMass

Probability that net cash flow will be negative

The management of Greensboro Products has been evaluating the risk of the cash flows associated with a proposed new project. The expected net cash flow for year 1 is $50,000. The most optimistic estimate (not expected to be exceeded more than 10 percent of the time) of the year 1 net cash flow is $110,000, and the most pessimistic net cash flow estimate for year 1 is -$10,000 (no greater than a 10 percent chance of a value this low or lower). What is the probability that year 1 net cash flows will be negative?

Attachments

Solution Summary

The management of Greensboro Products has been evaluating the risk of the cash flows associated with a proposed new project. The expected net cash flow for year 1 is $50,000. The most optimistic estimate (not expected to be exceeded more than 10 percent of the time) of the year 1 net cash flow is $110,000, and the most pessimistic net cash flow estimate for year 1 is -$10,000 (no greater than a 10 percent chance of a value this low or lower). What is the probability that year 1 net cash flows will be negative?

$2.19