Mr. Thompson is considering investing in two period projects with the following probabilities and cash flows:...
Mr. Thompson is considering investing in two period projects with the following probabilities and cash flows:
| Probability | Cash Flow | |
| Period 1 | 0.25 | 1000 |
| 0.5 | 1200 | |
| 0.25 | 1400 | |
| Period 2 | 0.3 | 600 |
| 0.5 | 1000 | |
| 0.2 | 1400 |
The discount rate is 7%, and the initial investment is $2,000. How much is the expected NPV of this project? Should Mr. Thompson invest or not? Briefly explain your reasoning.
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