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 What is the expected NPV of the project? (answer in terms of millions, so 1,000,000 will be 1.00) Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Expected NPV of the Project

Expected NPV of the Project = Sum[NPV of each scenario x Probability of scenario]

= [-$50.00 Million x 0.22] + [-$5.00 Million x 0.35] + [$60.00 Million x 0.43]

= -$11.00 Million - $1.75 Million + $25.80 Million

= $13.05 Million

“Hence, the Expected NPV of the Project will be $13.05 Million”