A Concert Promoter Assesses That the Probability of a Concert

Multiple Choice

A concert promoter assesses that the probability of a concert being a success is 0.4. The initial cash cost to take out an option to organise the concert will be £50,000. A success will create a present value of all cash flows of £250,000 and a flop will lose £100,000. The promoter can make a final decision at a later date before making any further payments. What is the expected NPV, using an options approach?

A) £50,000
B) £14,000
C) £10,000
D) - £10,000