Problem
Prior to the investment progressing, further research has been undertaken and it has been identified that the selling price of £2 per box is unlikely to be achieved. It is expected that competitors will be selling a similar product and the price of £2 will depend upon the competitors' price.
The following information has been provided with regard to the possible selling price:
|
Competitors price
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Higher than £2
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Lower than £2
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Equals £2
|
|
Probability
|
0.1
|
0.7
|
0.2
|
|
Tea Ltd selling price
|
£2
|
£1.80
|
£1.95
|
Task
Calculate the expected selling price of the box, determine its effect on the NPV of the project and discuss the implications.