How much could NPV be affected by a worst-case scenario

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John Paul Inc is expected to generate $1.5 million in operating income and pay $250,000 in interest. Ignoring taxes, this will generate 12.50% return on equity (earnings or net income divided by equity).

What will happen to return on equity if operating income increases to $2.0 million?

In assessing a capital expenditure project, how much is the base case from a constant $3 million in expected annual cash flows on a 5-year project with 10% cost of capital? 

How much could NPV be affected by a worst-case scenario of 25% reduction from the $3 million in expected annual cash flows on a 5-year project with 10% cost of capital?

Reference no: EM133079086

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