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In: Finance
Basic scenario analysis -- Prime Paints is in the process of evaluating two mutually exclusive additions...
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.
|
Project A |
Project B |
|
| Initial investment
(CF 0CF0) |
12,200 |
12,200 |
|
Outcome |
Annual cash inflows
(CFCF ) |
|
|
Pessimistic |
$800 |
$1,560 |
|
Most likely |
1,700 |
1,700 |
|
Optimistic |
2,480 |
1,720 |
a. Determine the range of annual cash inflows for each of the two projects.
b. Assume that the firm's cost of capital is 9.8% and that both projects have 20-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.
c. Do parts A and B provide consistent views of the two projects? Explain.
d. Which project do you recommend? Why?
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jeff jeffy answered 1 year agoRelated Solutions
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to...
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.
Project A
Project B
Initial investment
(CF0)
$12,400
$12,400
Outcome
Annual cash inflows
(CF )
Pessimistic
$840
$1,560
Most likely
1,650
1,650
Optimistic
2,450
1,740
a. Determine the range of annual cash...
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to...
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.
Project A
Project B
Initial investment
(CF 0CF0)
$12,700
$12,700
Outcome
Annual cash inflows
(CFCF )
Pessimistic
$880
$1,530
Most likely
1,680
1,680
Optimistic
2,470
1,710
a. Determine the range of annual...
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to...
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
developedpessimistic, most likely, and optimistic estimates of
the annual cash inflows associated with each project. These
estimates are shown in the following table.
Project A
Project B
Initial investment
(CF0)
$12,400
$12,400
Outcome
Annual cash inflows
(CF )
Pessimistic
$840
$1,560
Most likely
1,650
1,650
Optimistic
2,450
1,740
a. Determine the range of annual cash inflows...
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to...
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.
Project A Project B
Initial investment
(CF0)
$12,900
$12,900
Outcome
Annual cash inflows
(CF )
Pessimistic
$870
$1,530
Most likely
1,690
1,690
Optimistic
2,500
1 720
a. Determine...
Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to...
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
developedpessimistic, most likely, and optimistic estimates of
the annual cash inflows associated with each project. These
estimates are shown in the following table.
Project A
Project B
Initial investment
(CF 0CF0)
$12,800
$12,800
Outcome
Annual cash inflows
(CFCF )
Pessimistic
$860
$1,530
Most likely
1,680
1,680
Optimistic
2,500
1,780
a. Determine the range of annual cash...
Prime Paints is in the process of evaluating two mutually exclusive additions to its processing capacity.
Project AProject BInitial investment(CF0)$12,600$12,600OutcomeAnnual cash inflows(CF )Pessimistic$810$1,590Most likely1,6101,610Optimistic2,4901,770Basic 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.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...
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
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following projected cash flows: If the appropriate discount rate
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cent.) What is the NPV of project B? $ (Round to the nearest
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(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV)
You have been assigned the task of evaluating two mutually
exclusive projects with the following projected cash flows:
YEAR
PROJECT A
CASH FLOW
PROJECT B
CASH FLOW
0
−$110,000
−$110,000
1
30,000
0
2
30,000
0
3
30,000
0
4
30,000
0
5
30,000
220,000
(Click
on the icon located on the top-right corner of the data table
above in order to copy its contents into a
spreadsheet.)
If the appropriate discount rate on these...
(Mutually exclusive projects and NPV) You have been assigned the task of evaluating two mutually exclusive...
(Mutually exclusive projects and NPV) You have been assigned
the task of evaluating two mutually exclusive projects with the
following projected cash flows:
YEAR PROJECT A CASH FLOW PROJECT B CASH
FLOW
0 -105,000 -105,000
1 40,000 0
2 40,000 0
3 40,000 0
4 40,000 0
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You are evaluating two mutually exclusive projects. The cash flows for each are:
You are evaluating two mutually exclusive
projects. The cash flows for each are:
Project
A Project
B
Year
0 ($60,000) ($85,000)
Year
1 $20,000 $22,000
Year
2 $35,000 $25,000
Year
3 $20,000 $30,000
Year
4 $25,000 $25,000
Year
5 $15,000
Year
6 $10,000
Year
7 $10,000
Year
8 $10,000
Assume that, if needed, each project is repeatable with no
change in cash flows. Your cost of capital is 13%.
Using the replacement chain approach, which project would you
chose to...
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