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Please find below the image of excel sheet attached for detailed calculations and formulas used to
derive these calculations :

Consider Alternatives x

Initial Investment = @ 200,000 ( Cash Outflow) at Year 3

Now we will first find out the Expected cash flow at each year 4, 5 & 6

For e.g at Year 4, Expected Cash Flow = Probability x Cash Flow  = 0.7 * 50000 + 0.3 * 40000 = $47,000

Similarly calculate Cash flow at Year 5 and Year 6. Year 5 = 0.7 * 50000 + 0.3 * 30000 = $ 44,000 

Year 6 = 0.7 * 50000 + 0.3 * 20000 = $ 41,000

Now next step is to discount this Cash Flow at year 4,5 & 6 to the time we have to consider the
alternative i.e Year 3. This net cash flow is then substracted from the investment at Year 3 which would
result in Expected NPV 

Expected NPV of Alternative x = -200,000 + 47,000 / (1.15^1) + 44,000 / (1.15^2) + 41,000 / (1.15^3)
= $ -98,902

Similarly,

Expected NPV of Alternative y = -75,000 + 30,000 / (1.15^1) + 34,500 / (1.15^2) + 39,000 / (1.15^3)
= $ 2,817

Expected NPV of Alternative x = -350,000 + 124,000 / (1.15^1) + 110,000 / (1.15^2) + 96,000 /

(1.15^3) = $ -98,902

As Expected NPV of Alternative y is positive and largest , decision y should be selected.

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