Reference no: EM13918799
Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities a project with the following net cash flows and probabilities:
Year Prob =0.2 Prob=0.6 Prob=0.2
0 $100,000 $100,000 $100,000
1 20,000 30,000 30,000
2 20,000 30,000 40,000
3 20,000 30,000 40,000
4 20,000 30,000 40,000
5 30,000 40,000 50.000
The Year 5 values include salvage value. Heywood's corporate cost of capital is 10%.
a). What is the projected expected NPV assuming average risk?
b).What are the projects most likely, worst, and the best base case NPV
c). What is the project's expected NPV on the basis of the scenario analysis?
d). What is the projected standard deviation of NPV?
e). Assume that Heywood's managers judge the project to have lower than average risk. the policy is to adjust the corporate cost of capital up or down by 3% points to account for differential risk. Is the project financially attractive?
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