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M Inc asks you to perform a feasibility study of a new video game that requires an initial investment of $8 million. M Inc. expects a total annual operating cash flow of $1.5 million for the next 10 years. The relevant discount rate is 10 percent. Cash flow occur at year-end.

After one year, the estimate of remaining annual cash flows will be revised wither upward to 2.75 million or downward to $345,000. Each revision has an equal probability of occurring. At that time, the video game project can be sold for $3.1 million.

What is the revised NPV given that the firm can abandon the project after one year?

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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M.V.P. Games, Inc., has hired you to perform a feasibility study of a new video game that requires a $7 million initial investment. M.V.P. expects a total annual operating cash flow of $1.3 million for the next 10 years. The relevant discount rate is 10 percent. Cash flows occur at year-end.

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PLEASE FOLLOW INSTRUCTIONS ON ROUNDING DECIMALS PLEASE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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