# Solve clearly.. Consider an investment with uncertain cash flows. The initial cost of the investment is \$85,000 in year zero. You estimate three scenarios for the following five years: Most

Solve clearly.. Consider an investment with uncertain cash flows. The initial cost of the investment is \$85,000 in year zero. You estimate three scenarios for the following five years:
Most likely came: The project will generate \$30,500 in year 1 and it will increase by \$500 each year until year 5.
.
Optimistic case: The project will generate \$41,000 in year 1 and it will increase by 69% each year until year 5.
Pessimistic case: The project will generate \$25,000 in year 1 and it will decrease by 79% each year until year 5.
a. (10 points) Using properties of Beta distribution, calculate expected value and variance for each year’s cash flows (for n=1,2,3,4,5).
b. (5 points) Assuming that periodical cash flows are independent, determine the expected value and the standard deviation of the present worth for this investment using a yearly interest rate
of 21 95 compounded annually.
[. (5 points) Using normal approximation, determine the probability that this investment will yield a negative present worth (Answer format must be x.xx96).
d. (5 points) Find the net present worth at risk (VaR) with a 95% confidence level for the duration of the project.

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