In: Finance
Project A: |
Project B: |
|||||
Initial Investment: |
Annual Cash Inflow: |
Outcome: |
Initial Investment: |
Annual Cash Inflow: |
Outcome: |
|
$20,000 |
$5,000 |
Pessimistic |
$100,000 |
$20,000 |
Pessimistic |
|
$10,000 |
Most Likely |
$40,000 |
Most Likely |
|||
$15,000 |
Optimistic |
$100,000 |
Optimistic |
Range of NPV = NPV@Optimistic - NPV @Pessimistic
NPV = PV of Cash Inflows - PV of Cash Outflows
NPV@Optimistic :
Year | CF | PVF @10% | Disc CF |
0 | $ -1,00,000.00 | 1.0000 | $ -1,00,000.00 |
1 | $ 1,00,000.00 | 0.9091 | $ 90,909.09 |
2 | $ 1,00,000.00 | 0.8264 | $ 82,644.63 |
3 | $ 1,00,000.00 | 0.7513 | $ 75,131.48 |
4 | $ 1,00,000.00 | 0.6830 | $ 68,301.35 |
5 | $ 1,00,000.00 | 0.6209 | $ 62,092.13 |
NPV | $ 2,79,078.68 |
NPV@Pesimistic:
Year | CF | PVF @10% | Disc CF |
0 | $ -1,00,000.00 | 1.0000 | $ -1,00,000.00 |
1 | $ 20,000.00 | 0.9091 | $ 18,181.82 |
2 | $ 20,000.00 | 0.8264 | $ 16,528.93 |
3 | $ 20,000.00 | 0.7513 | $ 15,026.30 |
4 | $ 20,000.00 | 0.6830 | $ 13,660.27 |
5 | $ 20,000.00 | 0.6209 | $ 12,418.43 |
NPV | $ -24,184.26 |
Range of NPV = NPV@Optimistic - NPV @Pessimistic
= 279078.68 - (-24184.26)
= $ 303,262.94
OPtion C is correct.