Scenario analysis for mutually exclusive projects

Reference no: EM1329767

Basic scenario analysis Murdock 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.

Project A Project B
Initial investment (CF0) $8,000 $8,000
Outcome Annual cash inflows (CF)
Pessimistic $ 200 $ 900
Most likely 1,000 1,000
Optimistic 1,800 1,100

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

b. Assume that the firm's cost of capital is 10% and that both projects have 20-year lives. Construct a table similar to this for the NPVs for each project. 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?

Reference no: EM1329767

Questions Cloud

Explain customer service challenges for e-commerce : Explain Customer Service challenges for e-commerce and Discuss the main challenges that e-commerce organizations face in the customer services arena

Strengths and weaknesses of personal selling : Show the strengths and weaknesses of personal selling, and describe a situation in which a company could benefit from including personal selling strategies in its IMC plan.

Explain analyze the supply chain of home depot and lowe''s : Explain Analyze the Supply Chain of Home Depot and Lowe's and Explain how the supply chain was modified form brick to mortar by e-commerce

Turning sustainability shortcomings : Identify ways in which it may expand upon current or past sustainability successes and Identify opportunities for turning sustainability shortcomings into areas of sustainability growth.

Scenario analysis for mutually exclusive projects : Find out the range of annual cash inflows for each of the two projects. Suppose that the firm's cost of capital is 10% and that both projects have 20-year lives. Develop a table similar to this for NPVs for each project. Comprise the range of NPVs ..

Explain project management- project success or failure : Explain Project Management- identify factors that contribute to project success or failure and include recommendations as appropriate

Negatives aspects of establishing crm : Customer Relationship Management explained in this answer - Can you help me with this assignment?

Explain impact of three changes brought about by e-business : Explain Impact of three changes brought about by E-Business and assesses the impact of three changes brought about by E-Business

Annuity payment amounts with changing interest : Set up the fund of semi-annual payments to be compounded semi-annually to accumulate the some of $100,000 after 10 years at 8 percent annual rate (20 payments). Find out how much the semi-annual payment should be. (round to whole numbers.)

User Account

All Pages