The managers of U.S. Rubber have analyzed a proposed investment project. The expected net present value (NPV) of the project, evaluated at the firm’s weighted cost of capital of 18 percent, has been estimated to be $100,000. The company’s managers have determined that the most optimistic NPV estimate of the project is $175,000 and the most pessimistic estimate is $25,000. The most optimistic estimate is a value that is not expected to be exceeded more than 10 percent of the time. The most pessimistic estimate represents a value that the project’s NPV is not expected to fall below more than 10 percent of the time. What is the probability that this project will have a negative NPV?
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