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Determine the range of annual cash inflows

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Reference no: EM132520748

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?)                                ?$13,000                  ?$13,000

Outcome

Annual cash inflows

?(CFCF ?)

Pessimistic                               ?$840                       ?$1 1,580

Most likely                               1,680                        1,680

Optimistic                                2,460                       1,740

Question a. Determine the range of annual cash inflows for each of the two projects.

Question b. Assume that the? firm's cost of capital is 9.2 %9.2% 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.

Question c. Do parts (a?) and (b?) provide consistent views of the two? projects? Explain.

Question d. Which project do you? recommend? Why?

Reference no: EM132520748

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