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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...
P12-4 (similar to) Basic scenario analysis Prime Paints is in the process of evaluating two mutually...
P12-4 (similar 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 12,500 12,500 (CF 0CF0) Outcome Annual cash inflows
(CF CF ) Pessimistic $880 $1,550 Most likely 1,690 1,690
Optimistic 2,420 1,790 a. Determine...
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YEAR
PROJECT A
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PROJECT B
CASH FLOW
0
−$110,000
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(Click
on the icon located on the top-right corner of the data table
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