Answer:
Net cash flow to shareholders = -400
Explanation:
The probability of favorable economy is 60%
The probability unfavorable economy is 40%.
The cost of investment is $25,000
finance the project with $8,000 of equity $17,000 of debt.
Solution:
Net cash flow to shareholders = expected cash flow generated - cost of investment
Expected cash flow generated next year = 33000 * 0.6 + 12000 * 0.4
Expected cash flow generated next year = 19800 + 4800
Expected cash flow generated next year = 24600
Given cost of investment = 25000
Net cash flow to shareholders = (expected cash flow generated - cost of investment)
Net cash flow to shareholders = 24600 - 25000
Net cash flow to shareholders = -400