Hermon Co. is considering a four-year project that will require an initial investment of $12,000. The base-case cash flows for…
August 5th, 2022
Hermon Co. is considering a four-year project that will require an initial investment of $12,000. The base-case cash flows for this project are projected to be $12,000 per year. The best-case cash flows are projected to be $19,000 per year, and the worst-case cash flows are projected to be -$3,000 per year. The company’s analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows.
What would be the expected net present value (NPV) of this project if the project’s cost of capital is 11%?