Basis of the tornado diagram

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A friend of yours can invest in a multiyear project. The cost is $14,000. Annual cash flows are estimated to be $5000 per year for six years but could vary between $2500 and $7000. Your friend estimates that the cost of capital (interest rate) is 11%, but it could be as low as 9.5% and as high as 12%. The basis of the decision to invest will be whether the project has a positive net present value. Construct a tornado diagram for this problem. On the basis of the tornado diagram, advise your friend regarding either (1) whether to invest or (2) what to do next in the analysis.

Reference no: EM13995706

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