Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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.
Initial investment (CF)
Outcome
Pessimistic
Most likely
Optimistic
Project A
$12,100
Annual cash inflows (CF)
$830
1,670
2,400
Project B
$12,100
a. The range of annual cash inflows for project A is $
$1,530
1,670
1,730
a. Determine the range of annual cash inflows for each of the two projects.
b. Assume that the firm's cost of capital is 9.5% and that both projects have 17-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.
(Round to the nearest dollar.)
...
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Transcribed Image Text: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. Initial investment (CF) Outcome Pessimistic Most likely Optimistic Project A $12,100 Annual cash inflows (CF) $830 1,670 2,400 Project B $12,100 a. The range of annual cash inflows for project A is $ $1,530 1,670 1,730 a. Determine the range of annual cash inflows for each of the two projects. b. Assume that the firm's cost of capital is 9.5% and that both projects have 17-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. (Round to the nearest dollar.) ...
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