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Question
Steppingstone Incorporated
The Z−90 project being considered by Steppingstone Incorporated (SI) has an up-front cost of $250,000. The project's subsequent cash flows are critically dependent on whether another of its products, Z-45, becomes an industry standard. There is a 50% chance that the Z-45 will become the industry standard, in which case the Z-90's expected cash flows will be $110,000 at the end of each of the next 5 years. There is a 50% chance that the Z−45 will not become the industry standard, in which case the Z-90's expected cash flows will be $25,000 at the end of each of the next 5 years. Assume that the cost of capital is 12%.
Refer to data for Steppingstone Incorporated. Based on the above information, what is the Z-90's expected net present value?
a. -$6,678
b. -$3,251
c. $15,303
d. $20,004
e. $45,965
Answer
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