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Probability and Expected Cash Flow in Marketing Management

Cooper Construction is considering purchasing new, technologically advanced equipment. The equipment will cost $625,000 with a salvage value of $50,000 at the end of its useful life of 10 years. The equipment is expected to generate additional annual cash inflows with the following probabilities for the next ten years:

Probability
Cash Flow

0.15
60,000

0.25
85,000

0.45
110,000

0.15
130,000

a) What is the expected cash flow?

b) Cooper's cost of capital is 10%. What is the expected net present value?

c) Should Cooper buy the equipment?

Solution Summary

A detailed step-by-step calculation of Expected Cash Flow and Net Present Value in Marketing Management provides students with a clear perspective of these complicated topics.

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