Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $27,300, has a five-year life, and has no residual value after five years. The company's cost of capital is 10.41%. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV across the three scenarios. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Year 1 2 3 4 5 Pessimistic $6,720 7,180 8,680 7,770 5.800 Expected cash inflows Most likely $9,240 10,150 11,790 10,740 7.840 Optimistic $11,830 13,260 15,800 12,790 8.780

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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### Investment Analysis of a Nylon-Knitting Machine

Birkenstock is evaluating an investment opportunity involving a nylon-knitting machine. The specifics of this investment include:

- **Initial Investment**: $27,300
- **Lifespan**: 5 years
- **Residual Value**: $0 after 5 years
- **Cost of Capital**: 10.41%

The company forecasts expected cash inflows under three scenarios: pessimistic, most likely, and optimistic. These projections are detailed in the table below:

#### Expected Cash Inflows

| Year | Pessimistic | Most Likely | Optimistic |
|------|-------------|-------------|------------|
| 1    | $6,720      | $9,240      | $11,830    |
| 2    | $7,180      | $10,150     | $13,260    |
| 3    | $8,680      | $11,790     | $15,800    |
| 4    | $7,770      | $10,740     | $12,790    |
| 5    | $5,800      | $7,840      | $8,780     |

### Instructions
Calculate the range for the Net Present Value (NPV) across all three scenarios. This information can be copied into a spreadsheet for further analysis.

(Note: For interactive use, there's a feature to directly copy the table data into a spreadsheet by clicking on a designated icon.)
Transcribed Image Text:### Investment Analysis of a Nylon-Knitting Machine Birkenstock is evaluating an investment opportunity involving a nylon-knitting machine. The specifics of this investment include: - **Initial Investment**: $27,300 - **Lifespan**: 5 years - **Residual Value**: $0 after 5 years - **Cost of Capital**: 10.41% The company forecasts expected cash inflows under three scenarios: pessimistic, most likely, and optimistic. These projections are detailed in the table below: #### Expected Cash Inflows | Year | Pessimistic | Most Likely | Optimistic | |------|-------------|-------------|------------| | 1 | $6,720 | $9,240 | $11,830 | | 2 | $7,180 | $10,150 | $13,260 | | 3 | $8,680 | $11,790 | $15,800 | | 4 | $7,770 | $10,740 | $12,790 | | 5 | $5,800 | $7,840 | $8,780 | ### Instructions Calculate the range for the Net Present Value (NPV) across all three scenarios. This information can be copied into a spreadsheet for further analysis. (Note: For interactive use, there's a feature to directly copy the table data into a spreadsheet by clicking on a designated icon.)
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