When Anthony first pitched a new product idea to his manager, it was very well received because he did such a thorough job of researching and analyzing it. He presented a comprehensive forecast that included both possible and probable levels of returns to be earned from this investment. As a result, the company handed over the money and put Anthony in charge of the project. The company planned to evaluate the investment based on his "probable" forecast. One year into the project, money started getting tight in other divisions of the company. Pressure was on for Anthony to provide some proof that this 3-year investment was starting to work. As of the end of that first year, $12,000 in operating costs and $12,000 in new operating cash inflows (both reflect after-tax amounts) had been realized. Anthony had collected the following information but clearly still only had projections for the remaining 2 years of this project. Estimated (and actual) initial project investment Estimated annual operating cash outflows (after-tax) Estimated operating cash inflows (after-tax): Year 1 Year 2 Year 3 $15,500 12,000 13,300 20,900 42,800

When Anthony first pitched a new product idea to his manager, it was very well received because he did such a thorough job of researching and analyzing it. He presented a comprehensive forecast that included both possible and probable levels of returns to be earned from this investment. As a result, the company handed over the money and put Anthony in charge of the project. The company planned to evaluate the investment based on his "probable" forecast. One year into the project, money started getting tight in other divisions of the company. Pressure was on for Anthony to provide some proof that this 3-year investment was starting to work. As of the end of that first year, $12,000 in operating costs and $12,000 in new operating cash inflows (both reflect after-tax amounts) had been realized. Anthony had collected the following information but clearly still only had projections for the remaining 2 years of this project. Estimated (and actual) initial project investment Estimated annual operating cash outflows (after-tax) Estimated operating cash inflows (after-tax): Year 1 Year 2 Year 3 $15,500 12,000 13,300 20,900 42,800

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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