What is the project expected NPV

Reference no: EM131953974

Problem - Pediatric Partners is evaluating a project with the following net cash flows and probabilities:

Year	Prob. = 0.25	Prob. = 0.5	Prob. = 0.25
0	($75,000)	($75,000)	($75,000)
1	15,000	20,000	30,000
2	15,000	20,000	30,000
3	15,000	20,000	30,000
4	15,000	20,000	30,000
5	20,000	30,000	40,000

The Year 5 values include salvage value. Pediatric Partners' corporate cost of capital is 12 percent.

a. What is the project's expected (i.e., base case) NPV assuming average risk? (Hint: The base case net cash flows are the expected cash flows in each year.)

b. What are the project's most likely, worst-case, and best-case NPVs?

c. What is the project's expected NPV on the basis of the scenario analysis?

d. What is the project's standard deviation of NPV?

e. Assume that Pediatric Partners' managers judge the project to have higher-than-average risk. Furthermore, the practice's policy is to adjust the corporate cost of capital up or down by 2 percentage points to account for differential risk. Is the project financially attractive?

Reference no: EM131953974

Questions Cloud

Importation of foreign prescription drugs : 1. List two arguments for allowing importation of foreign prescription drugs. 2. List two arguments against the importation of prescription drugs.

Explain a mechanism of reception : All of these systems must contain: a mechanism of reception (how energy is absorbed-taken in). a process of transduction.

Which would be better for stimulating the economy : Which would be better for stimulating the economy; a tax cut, or a spending increase? Why do you think as you do?

Develop a list of organizations or community resources : Develop a list of 5 organizations or community resources in your area that provide grief and loss counseling services, providing the name of the organization.

What is the project expected NPV : The Year 5 values include salvage value. Pediatric Partners' corporate cost of capital is 12 percent. What is the project's expected NPV

Which would be better for stimulating the economy : Which would be better for stimulating the economy; a tax cut, or a spending increase? Why do you think as you do?

Health profession opportunity grant : It was a pleasure speaking with you today. As I discussed briefly, Project Hope is a Health Profession Opportunity Grant (HPOG) funded by the U.S.

What was the greater shanghai plan : What was the Greater Shanghai Plan? In Empire of the Sun, what does it mean that Jamie gradually becomes Jim, and how is Jim different from Jamie?

Methods of depreciation discussed in readings : Discuss how an asset's cost is determined as well as the two methods of depreciation discussed in your readings.

User Account

All Pages