Galbraith Co. is considering a four-year project that will require an initial in

Question

Galbraith Co. is considering a four-year project that will require an initial investment of $7,000. 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

Explanation / Answer

Cashflows Present value Year Best Normal Worst Expected at 12% 0 -7000 -7000 -7000 -7000 -7000.00 1 19000 12000 -3000 10000 8928.57 2 19000 12000 -3000 10000 7971.94 3 19000 12000 -3000 10000 7117.80 4 19000 12000 -3000 10000 6355.18 Total 23373.49 Answer: 23,374

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