Question

u it Cost Ul Capital is 6%. Calculate the percentage increase in the net present worth of the project if the annual revenues are increased by 1%. Answer: Question 13 Not yet answered Points out of 3.75 P Flag question (NOTE: ENTER YOUR ANSWER WITHOUT THE S AND COMMA, ROUNDED TO THE NEAREST DOLLAR, for instance as 10023, not as $10,022.78. Insert the negative sign in front of your answer if it is negative. Do not round intermediate calculations!) Supersmart Consulting PPL is evaluating a client's proposed project. The project's initial investment is $55,000, and the project is expected to last for 2 years. Two scenarios were identified for each year of the project, an optimistic one and a pessimistic one. The probability that the project will go well in year 1 is 61%. If this is the case the project will bring $44,000 in year 1, and there would then be a 73% probability it will bring $64,000 in year 2, and a 27% probability it will bring $24,000 in year 2. The probability that the project will go poorly in year 1 is 39%. If this is the case the project will bring $13,000 in year 1, and there would then be a 17% probability it will bring $53,000 in year 2, and a 83% probability it will bring $23,000 in year 2. Assuming 5% cost of capital, compute the expected net present worth of the project.

Answer 1

decision tree Joint porcbability 0.61 x 8.73 o.uus3 64000 73% 44000 *ای 0-61x0.27 = 0.1647 27/ a 400D 155ooo) 0.39 X 0.83 0.3237 831. 23000 391 13000 = 0.0663 0.39 x 0.17 53000 year : year:2

pv factors @ 5% for year;) : 0.952 year! 2 = 0.907 outflow CF₂ x pr factor inflow (atb=l New (c-d) CFx pufactor ca) (5) (55000) 44936 99936 UUDOD * 0.952 = 4,888 44000 x 0.952 - 41888 64000 x 0.907 - 58048 24000 XD.907 = 21768 8 656 63656 (55000) 33 237 (55000) - 21763 13000x 0.952 = 12376 13000 x 0.952 23000 0-907 = 90 86 53000 X 0.907 5447 (5500o) 12376 60447 - 48071 path Npy @5% Joint probability 44936 0.4453 expected Nov axb 200 lo 1426 8656 -0-1647 - 7045 -21763 0.3237 4 5447 5447 0.0663 361 0.063 ī 1952 14752 : Expected Alpy of project = 14752