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Project's expected net present value

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Oklahoma Instruments
Oklahoma Instruments (OI) is considering a project that has an up-front cost of $250,000. The project's subsequent cash flows critically depend on whether its products become the industry standard. There is a 50 percent chance that the products will become the industry standard, in which case the project's expected cash flows will be $110,000 at the end of each of the next five years. There is a 50 percent chance that the products will not become the industry standard, in which case the project's expected cash flows will be $25,000 at the end of each of the next five years. Assume that the cost of capital is 12 percent.

Refer to Oklahoma Instruments. Based on this information, what is the project's expected net present value?

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Oklahoma Instruments
Oklahoma Instruments (OI) is considering a project that has an up-front cost of $250,000. The project's subsequent cash flows critically depend on whether its products become ...

Solution Summary

This explains the computation of project's expected net present value

$2.19