The most likely outcomes for a particular project are estimated as follows:Unit price:$$$300,00040,000 units per year70Variable cost:50Fixed cost:Expected sales:However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10%higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.2 million, whichwill be depreciated straight-line over the project life to a final value of zero. The firm's tax rate is 21% and the required rate of return is12%.(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Donot round intermediate calculations. Round your answer to the nearest dollar amount.)a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value?b. What is project NPV in the worst-case scenario?a.NPVb. NPV

Net present value is the present value in today's time. It is computed by discounting future cash flows. In the best-case scenario the variable cost will increase by $5,units pr year by 4,000, fixed cost by 30,000 and the unit price by 7. In the worst-case scenario, all the variables will decrease by 10% that is variable cost will increase by $5, units per year by 4,000, fixed cost by 30,000 and the unit price by 7. Calculation of NPV under the best case is as follows:Calculation of NPV under worst-case scenario is as follows:

Business

Finance

(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project NPV in the worst-case scenario?

(For all the requirements, a negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) a. What is project NPV in the best-case scenario, that is, assuming all variables take on the best possible value? b. What is project NPV in the worst-case scenario?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following statements are true? I At higher discount rate, a project is more likely to be rejected. II A project is acceptable if the IRR = 8% while the cost of capital = 5%. III IRR does not account for time value of money. Group of answer choices 1. All of the above. 2. I and II 3. I and III 4. II and III
Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky. O If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative. O If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero. O There is no necessary relationship between a project's IRR, its WACC, and its NPV. O When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVS when the cost of capital is relatively high. O If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.
Engineering Economics
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. The lower the WACC used to calculate a project's NPV, the lower the calculated NPV will be. If a project's NPV is less than zero, then its IRR must be less than the WACC. If a project's NPV is greater than zero, then its IRR must be less than zero. The NPV of a relatively low-risk project should be found using a relatively high WACC. A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC. 000o
#3 ARR is incorrect. Please answer again - Calculate the payback period for above - Calculate the NPV for above
Which of the following is FALSE regarding various methods of project analysis? Both NPV and IRR consider the time value of money. Average Accounting Return ignores the time value of money. Payback focuses on liquidity. O Profitability Index is able to rank projects in the situation of capital rationing. () Payback considers the time value of money. Next Page Page 17 of 3 Previous Page Submit Quiz O of 30 questions saved
Which of the following were listed as potential Problems or Issues associated with Using a Rate of Return Approach to justifying single or multiple Mutually Exclusive projects? Note: This is a Multiple Answer question. Please select all of the following options you think are correct? O The ROR calculations are typically more complex than the PW, AW, or FW methods and frequently require the use of trial and error techniques. O You cannot rely on the best Mutually Exclusive project to have the highest ROR. O An incremental approach is required to reliably determine the best project when comparing multiple Mutually Exclusive projects with the ROR approach. O This method assumes that any net positive cash flows are reinvested at the ROR rate. If the ROR rate is substantially larger than MARR, this might not be a realistic assumption. OFor any sequence of Net Cash Flows with more than one sign chance over the life of the project there may be more than one ROR value that satisfies the Rate…
State whether the following statement true or false and provide a brief explanation
29....When using the NPV method the decision making rationale includes the following (select all that apply): a.If projects are mutually exclusive, accept the project with the highest positive NPV. b.If projects are independent, accept if the project NPV<0. c.If projects are independent, accept if the project NPV>0 d.If the projects are mutually exclusive, accept the project with lowest NPV.
d. Consider the following statement "If an analyst decides to use real options methodology to value a project, estimating a standard Discounted Cash Flow model is useless". Do you agree with this statement? Explain your answer.

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