Question

Suppose that Illumination Nation Incorporated is considering a project to make Despicable Me, Part 3. The company believes that demand is fading for the movie, but there may be interest for one more installment. They have estimated the NPV for three different scenarios with a probability of each occurring. The projections are shown below: NPV for SCENARIO: Probability of Scenario: SCENARIO: 0.22 POOR Sales -$50.00 million -$5.00 million 0.35 AVERAGE Sales 0.43 GREAT Sales $60.00 million The producer wants to know the probability that the NPV is positive. What do you tell him based on the given information? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Answer 1

Answer:

Probability that NPV is positive 43.00%

Working:

From the given information, we observe that:

NPV is a positive at $60.00 million only when the scenario is 'GREAT'. In other two scenarios NPV is negative in both cases.

The probability of occurrence of scenario 'GREAT' is 0.43 which is equal to probability of = 43.00%

Hence probability that NPV is positive = 43.00%