allen is analyzing a project and has determined that the initialcost will be $760,000 and the required rate of return needs to be12 percent. The project has a 60 percent chance of success and a 40percent chance of failure. If the project fails, it will generatean annual after-tax cash flow of $150,000. If the project succeeds,the annual after-tax cash flow will be $306,000. She has furtherdetermined that if the project fails, she will shut it down afterthe first year and sell the equipment for the after-tax salvagevalue of $300,000. If however, the project is a success, she canexpand it with no additional investment and increase the after-taxcash flow to $326,000 a year for Years 2-5. At the end of Year 5,the project would be terminated and have no salvage value. What isthe expected net present value of this project at Time 0?
| | $149,588.92 |
| | $110,676.38 |
| | $74,356.72 |
| | $95,094.23 |
| | $127,410.88 |
