The Maritime Cannery Company Is Considering a New Machine That

Multiple Choice

The Maritime Cannery Company is considering a new machine that costs $100,000. It will last three years and management feels there are two possible cash flow possibilities each year, depending on whether the country is in recession or not. Year 1: 70% chance of $40,000 and 30% chance of $20,000; Year 2: 60% chance of $50,000 and 40% chance of $30,000; Year 3: 80% chance of $60,000 and 20% chance of $20,000. What is the expected net present value of the new machine if the company's discount rate is 6%?

A) ($78,000)
B) ($6,583)
C) $6,000
D) $13,116
E) $28,000