Reference no: EM132992078
Question - 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?) ?$12,200? $12,200
Outcome 0
Annual cash inflows ?(CF?)
Pessimistic ?$850 ?$1,550
Most likely 1,650 1,650
Optimistic 2,450 1,750
Required -
a. Determine the range of annual cash inflows for each of the two projects.
b. Assume that the? firm's cost of capital is 9.3% and that both projects have 15?-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?
a. The range of annual cash inflows for project A is?
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