If MacCaugh's pilot project is successful,it will be able to build a plant with an NPV of $2 million in 1 year's time.Otherwise the pilot investment will be valueless.If the discount rate is 20% and the chances of success are 50%,how much can MacCaugh afford to spend on the pilot project?
A) $1 million.
B) $2 million.
C) $1.667 million.
D) $833,333.

Question

Quizplus · Accepted Answer

NPV = 0 = C₀ + 0.5 × $2 million / 1.2C₀ = −$833,333

If MacCaugh's Pilot Project Is Successful,it Will Be Able to Build