Prime 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. These estimates are shown in the following table. Project A Project B Initial investment (CF0) $12,900 $12,900 Outcome Annual cash inflows (CF ) Pessimistic $830 $1,540 Most likely 1,690 1,690 Optimistic 2,490 1790 Assume that the firm's cost of capital is 9.1% and that both projects have 18-year lives. Complete the NPV table below for project A: (Round to the nearest cent.) NPVs Outcome Project A Pessimistic $ Most likely Optimistic Range $ c. Do parts (a)and (b) provide consistent views of the two projects? Explain. d. Which project do you recommend? Why?
Prime 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. These estimates are shown in the following table. Project A Project B Initial investment (CF0) $12,900 $12,900 Outcome Annual cash inflows (CF ) Pessimistic $830 $1,540 Most likely 1,690 1,690 Optimistic 2,490 1790 Assume that the firm's cost of capital is 9.1% and that both projects have 18-year lives. Complete the NPV table below for project A: (Round to the nearest cent.) NPVs Outcome Project A Pessimistic $ Most likely Optimistic Range $ c. Do parts (a)and (b) provide consistent views of the two projects? Explain. d. Which project do you recommend? Why?
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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Question
Prime 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. These estimates are shown in the following table.
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Project A
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Project B
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Initial investment
(CF0)
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$12,900
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$12,900
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Outcome
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Annual cash inflows
(CF )
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Pessimistic
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$830
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$1,540
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Most likely
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1,690
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1,690
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Optimistic
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2,490
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1790
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Assume that the firm's cost of capital is 9.1% and that both projects have 18-year
lives. Complete theNPV table below for project A: (Round to the nearest cent.)
lives. Complete the
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NPVs
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||
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Outcome
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Project A
|
|
|
Pessimistic
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$
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|
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Most likely
|
|
|
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Optimistic
|
|
|
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Range
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$
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c. Do parts (a)and (b) provide consistent views of the two projects? Explain.
d. Which project do you recommend? Why?
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