4 Consider the two following investment alternatives Investm

4) Consider the two following investment alternatives. Investment X NPV Investment Y NPV Probability Probability 75 .25 Outcome Outcome 75 .25 2 10 15 A) What are the expected Net Present Values (NPV) for investment X and investment Y

Solution

Ans:

Expected NPV = (p * scenario NPV)

where, p = probability

Expected NPV for Investment X = (5 * 0.75) + (10 * 0.25)

= 3.75 + 2.5

= 6.25

Expected NPV for Investment Y = (0 * 0.75) + (15 * 0.25)

= 0 + 3.75

= 3.75