Question

Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The firm's financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows associated with each project. These estimates are shown in the following table. Project A $12,200 Project B $12,200 Initial investment (CF) Outcome Pessimistic Most likely Optimistic Annual cash inflows (CF) $880 $1,510 1,680 1,680 2,480 1,730

Answer 1

Salution Prime Paints ① Range of Cash Inflous, Project A. Progest B $ 880 - $ 2480 $1510 - $ 1730

Pessimistic Most likely optimistic Project A Initial . Investment $ 12200 $12200 $12200 ③ PV of Annual Cash flows $7375-68 $ 14080.84 $20785.87 16801 1-1 (24801 - (-09391 0.093 0.093 (0930 (1.093) 17| 0-993 © NPV → @-@ $4824.32) $1880-84 $8585-87 Project B $ 122.00 12200 + 12207 @ Initial Investment $14080.75 $ 14500 ② Pu of Annual Cash Plany $ 12656 isto f ibes7 16801730 Tonos 0.093 toong (1095) $1888.75 $ 2300 $456 ② NPV ② - ②

Range of NPU Project A :- Project B - = ($4824.32 to $8585-87 456 to $2300 o pant @ 26 both proude debforent views as Cash inflous are better of project at but In case of NPV Project 8 may provide tue positive return in any situation. @ al Project B is recommended. because New is positive in any situation & autcomes.

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