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Washington Orchards is considering purchasing a cherry orchard. Once purchased there is a 92% chance that the NPV of the firm will increase by $95 million. Otherwise the NPV of the firm will decrease by $10 million. What is the NPV of the orchard?

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Washington Orchards is considering purchasing a cherry orchard. Once purchased there is a 92% chance that the NPV of the firm will increase by $95 million. Otherwise the NPV of the firm will decrease by $10 million. What is the NPV of the orchard?

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Solution Summary

The expert examines the net present value of the cherry orchard for Washington Orchards.

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Hello!
The NPV of the project is calculated as follows:

0.92*(95,000,000) + 0.08*(-10,000,000) = $86,600,000

We know that the NPV of this ...

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