A project starts with an initial capital outflow of RM450,000 in exchange for the following likely cash flows:State of EconomyProbabilityEnd of Year 1 (RM)End of Year 2 (RM)Recession18%150,000250,000Normal60%350,000450,000Boom22%550,000100,000Assume that the economy will be in the same condition in the second year as it was in the first. The discounted rate of return is 15 percent. There is no taxation or inflation.i) Calculate the expected Net Present Value (NPV).ii) Calculate the standard deviation of Net Present Value (NPV).

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Financial Management: Theory & Practice

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Author:Brigham

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Chapter7: Corporate Valuation And Stock Valuation

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A project starts with an initial capital outflow of RM450,000 in exchange for the following likely cash flows:

State of Economy	Probability	End of Year 1 (RM)	End of Year 2 (RM)
Recession	18%	150,000	250,000
Normal	60%	350,000	450,000
Boom	22%	550,000	100,000

Assume that the economy will be in the same condition in the second year as it was in the first. The discounted rate of return is 15 percent. There is no taxation or inflation.
i) Calculate the expected Net Present Value (NPV).

ii) Calculate the standard deviation of Net Present Value (NPV).

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