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490 Corporate Finance BRILLIANT’S

Year I

Event (i) (ii) (iii)
Cash inflow (`) 4,000 5,000 6,000
Probability 0.2 0.6 0.2

Year II
If cash inflow in year I are:
` 4,000 ` 5,000 ` 6,000
CF Probability CF Probability CF Probability
(`) (`) (`)
8,000 0.3 10,000 0.1 20,000 0.2
10,000 0.4 15,000 0.8 30,000 0.6
12,000 0.3 20,000 0.1 40,000 0.2
Using 10% as the cost of capital advise about the acceptability of the proposal and prepare
a decision-tree.
[Ans. NPV: ` 8,587 proposal should be accepted]
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