Show me the steps to solve: A friend of yours can invest in a multiyear project. The cost is $14, 000. Annual cash flows are estimated to be $5000 per year for six years but could vary between $2500 and $7000. Your friend estimates that the cost of capital (interest rate) is 11%, but it could be as low as 9.5% and as high as 12%. The basis of the decision to invest will be whether the project has a positive net present value. Construct a tornado diagram for this problem. On the basis of the tornado diagram, advise your friend regarding either (1) whether to invest or (2) what to do next in the analysis.

Chemistry: The Molecular Science
5th Edition
ISBN:9781285199047
Author:John W. Moore, Conrad L. Stanitski
Publisher:John W. Moore, Conrad L. Stanitski
Chapter4: Energy And Chemical Reactions
Section: Chapter Questions
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Show me the steps to solve: A friend of yours can invest in a multiyear project. The cost is $14,
000. Annual cash flows are estimated to be $5000 per year for six years but could vary
between $2500 and $7000. Your friend estimates that the cost of capital (interest rate) is 11%,
but it could be as low as 9.5% and as high as 12%. The basis of the decision to invest will be
whether the project has a positive net present value. Construct a tornado diagram for this
problem. On the basis of the tornado diagram, advise your friend regarding either (1) whether
to invest or (2) what to do next in the analysis.
Transcribed Image Text:Show me the steps to solve: A friend of yours can invest in a multiyear project. The cost is $14, 000. Annual cash flows are estimated to be $5000 per year for six years but could vary between $2500 and $7000. Your friend estimates that the cost of capital (interest rate) is 11%, but it could be as low as 9.5% and as high as 12%. The basis of the decision to invest will be whether the project has a positive net present value. Construct a tornado diagram for this problem. On the basis of the tornado diagram, advise your friend regarding either (1) whether to invest or (2) what to do next in the analysis.
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