soddy1979

lzen5 Wrote:
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> i asked the same question not so long ago,
> everyone tells me its minus one million, so why
> does the example on page 255 on the note actually
> use probability weigthed average , but here
> doesnt.
>
>
> had a closer look, now i get it.
>
> example on page p255, the investment has not been
> made. question on p267, 1 million has already been
> paid.


But if the investor from page p255 goes ahead to analyze the NPV, they would have to assume the full investment is going to be made and not the weighted average.

So b makes sense to me, but not the answer on p 255.

In other words, analyzing the investment should be the same whether you pay first and then analyze or analyze and then pay. If I'm going to value a company that is worth $50 that costs $20 it doesn't matter if I pay first and then analyze or analyze and then pay....

.... to take this one step further, you would never pay first and then analyze the NPV.