A decision tree shows a 30% probability of $2 million in returns and a 70% chance of $1 million in returns. What is the maximum you would invest today in this project if the cash inflow occurs one year in the future and the discount rate is 10%?
A) $818,181.82
B) $1,181,818.18
C) $1,300,000.00
D)$1,430,000.00

Question

Quizplus · Accepted Answer

NPV = 0 = -Inv + [(0.30 × $2m) + (0.70 × $1m)]/1.1; Inv = $1,181,818.18

A Decision Tree Shows a 30% Probability of $2 Million