solution

The Dewitt Corporation has determined the following discrete probability distributions for net cash flows generated by a contemplated project:

a. Assume that probability distributions of cash flows for future periods are independent. Also, assume that the risk-free rate is 7 percent. If the proposal will require an initial outlay of 55,000, determine the mean net present value.

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b. Determine the standard deviation about the mean.

c. If the total distribution is approximately normal and assumed continuous, what is the probability of the net present value being zero or less?

d. What is the probability that the net present value will be greater than zero?

e. What is the probability that the profitability index will be 1.00 or less?

f. What is the probability that the profitability index will be greater than 2.00?

 
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