Question

Project A $13,000 Project B $13.000 Initial investment (CF) Annual cash inflows (CF) Outcome Pessimistic Most likely $1,500 $810 1,650 1,650 Optimistic 2.460 1,790 a. Determine the range of annual cash inflows for each of the two projects b.Assume that the firm's cost of capital is 9.8% and that both projects have 19-year lives. Construct a table showing the NPVS for each project for each of the possible outcomes. Include the range of NPVS for each project c. Do parts (a) and (b) provide consistent views of the two projects? Explain d. Which project do you recommend? Why? a. The range of annual cash inflows for project A is S (Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. 5 parts remaining Clear All Check Answer

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

STATS -Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Z AutoSum- Cut A A Wrap Text Calibri 11 General E Copy Fill B IU Merge & Center $ % Conditional Format Formatting as Table Styles Paste 000 Cell Insert Delete Format Sort & Find & Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing fox C298 Formula Bar A В D E G 298 299 300 RANGE HIGHEST VALUE - LOWEST VALUE 301 a RANGE OF CASH FLOWS 1650 2460-810] PROJECT A 290 1790-1500] 302 PROJECT B 303 304 b Project A: Most likely: Optimistic: 305 Pessimistic: 9.80% 306 Rate = Rate = 9.80% Rate 9.80% 307 Nper 19 Nper 19 Nper 19 PMT= PMT= 308 810 PMT -1,650 460 PV =? PV =? PV =? 309 6866.32 [=PV(C306,C307,C308)] 20853.26 310 A PV = PV = 13986.94 PV = B Cash outflow Cash outflow = 311 Cash outflow= -13000.00 -13000.00 -13000.00 312 А-B NPV 3 -6133.68 NPV = 986.94 NPV= 7853.26 313 314 315 316 ΗWΡΟΤΗ assignment corr REGRESSION MATRIX PV FV DIVIDEND Sheet2 TREND freq DEAR COV MEAN STDV EMV TIME SERIES INTERVAL, NORMAL range CAMERA erences 130% 13:15 ENG 01-12-2019

STATS -Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum - Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Conditional Format Formatting as Table Styles Paste B IU $ % , Cell Insert Delete Format Sort & Find & Format Painter Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing G333 A C D E G H 319 Project B: |Optimistic: Most likely: Pessimistic: 320 9.80% 321 Rate 9.80% Rate = Rate = 9.80% 322 Nper = 19 Nper 19 Nper= 19 PMT PMT = 323 -1500 -1,650 PMT -1,790 PV =? PV =? PV =? 324 12715.40 -PV(C321,C322,C323)] 15173.71 325 PV = PV = 13986.94 PV = Cash outflow = Cash outflow -13000.00 Cash outflow = -13000.00 326 -13000.00 327 NPV= -284.60 NPV 986.94 NPV= 2173.71 328 NPVS of project A and Project B under different outcome 329 330 331 NPVS 332 b Project A Project B Outcome Pessimistic -284.60 333 -6133.68 Most likely 334 986.94 986.94 Optimistic 335 7,853.26 2,173.71 2,458 336 Range 13,987 337 HYPOTHI MEAN STDV corr REGRESSION MATRIX PV FV DIVIDEND assignment Sheet2 cOv TREND freq DEAR EMV TIME SERIES INTERVAL, NORMAL range CAMERA erences 130% W 13:16 ENG 01-12-2019

STATS-Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum Cut A A Wrap Text Calibri 11 General Copy Fill B IU Merge & Center Insert Delete Format Paste $ %, 000 Conditional Format Cell Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Alignment Clipboard Font Number Styles Cells Editing fox G331 В C D E G Н 331 NPVS 332 b Project A Project B Outcome Pessimistic 333 -6133.68 -284.60 Most likely 334 986.94 986.94 Optimistic 335 7,853.26 2,173.71 336 Range 13,987 2,458 337 338 339 c ALTHOUGH THE MOST LIKELY OUTCOME IS IDENTICAL FOR PROJECT A & B, THE NPV RANGE VARIES CONSIDERABLY 340 341 342 d PROJECT SELECTION WOULD DEPEND UPON THE RISK DISPOSITION OF THE MANAGEMENT 343 A IS MORE RISKY THAN B BUT ALSO HAS THE POSSIBILITY OF GREATER RETURN 344 345 346 347 348 349 HYPOTHI MEAN STDV assignment corr REGRESSION MATRIX PV FV DIVIDEND EMV Sheet2 COv TREND freq DEAR TIME SERIES INTERVAL, NORMAL range CAMERA erences 130% 13:16 ENG 01-12-2019