Suppose that the oil price is uncertain and can be either $60/bbl.or $30/bbl.next year with equal probability.Calculate the expected NPV of the project if it is postponed by one year.
A)+50 million
B)-25 million
C)+59 million
D)+47 million

Question

Quizplus · Accepted Answer

The expected NPV is calculated by taking the average of the NPVs at each oil price, weighted by their probabilities. If the NPVs at $60/bbl and $30/bbl are given or can be calculated, the expected NPV can be determined. Here, the expected NPV is +59 million.

Suppose That the Oil Price Is Uncertain and Can Be