You have a project that requires an investment of $22 million over one year after...
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You have a project that requires an investment of $22 million over one year after which you estimate a 25% chance of aborting at zero extra cost and an 75% chance of further development over two years at a cost of a further $30 million. At this point you estimate a 60% chance of making net profit of $120 million, a 20% change of making a net profit of $70 million and a 20% chance of making only $20 million. Your discount rate is 6%. Create a decision tree that illustrates these choices and calculate the NPV given the assumptions in the question. (10)
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