Xander Inc. has prepared the following sensitivity analysis: Line Item Description Amount Amount Amount Estimated Annual Net Cash Flow $500,000 $600,000 $700,000 Present value of annual net cash flows (× 4.487) $2,243,500 $2,692,200 $3,140,900 Present value of residual value 50,000 50,000 50,000 Total present value $2,293,500 $2,742,200 $3,190,900 Amount to be invested (3,000,000) (3,000,000) (3,000,000) Net present value $(706,500) $(257,800) $190,900 In addition, it has assigned the following likelihoods to the three possible annual net cash flows: $500,000, 70%; $600,000, 20%; and $700,000, 10%. Based on an expected value analysis, which of the following statements is accurate? a. The expected value of the annual net cash flow is $540,000, and the project should be accepted. b. The expected value of the annual net cash flow is $660,000, and the project should be accepted. c. The expected value of the annual net cash flow is $660,000, and the project should be rejected. d. The expected value of the annual net cash flow is $540,000, and the project should be rejected
Xander Inc. has prepared the following sensitivity analysis: Line Item Description Amount Amount Amount Estimated Annual Net Cash Flow $500,000 $600,000 $700,000 Present value of annual net cash flows (× 4.487) $2,243,500 $2,692,200 $3,140,900 Present value of residual value 50,000 50,000 50,000 Total present value $2,293,500 $2,742,200 $3,190,900 Amount to be invested (3,000,000) (3,000,000) (3,000,000) Net present value $(706,500) $(257,800) $190,900 In addition, it has assigned the following likelihoods to the three possible annual net cash flows: $500,000, 70%; $600,000, 20%; and $700,000, 10%. Based on an expected value analysis, which of the following statements is accurate? a. The expected value of the annual net cash flow is $540,000, and the project should be accepted. b. The expected value of the annual net cash flow is $660,000, and the project should be accepted. c. The expected value of the annual net cash flow is $660,000, and the project should be rejected. d. The expected value of the annual net cash flow is $540,000, and the project should be rejected
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
Xander Inc. has prepared the following sensitivity analysis:
| Line Item Description | Amount | Amount | Amount |
|---|---|---|---|
| Estimated Annual Net Cash Flow | $500,000 | $600,000 | $700,000 |
| $2,243,500 | $2,692,200 | $3,140,900 | |
| Present value of residual value | 50,000 | 50,000 | 50,000 |
| Total present value | $2,293,500 | $2,742,200 | $3,190,900 |
| Amount to be invested | (3,000,000) | (3,000,000) | (3,000,000) |
| $(706,500) | $(257,800) | $190,900 |
In addition, it has assigned the following likelihoods to the three possible annual net cash flows: $500,000, 70%; $600,000, 20%; and $700,000, 10%. Based on an expected value analysis, which of the following statements is accurate?
a. The expected value of the annual net cash flow is $540,000, and the project should be accepted.
b. The expected value of the annual net cash flow is $660,000, and the project should be accepted.
c. The expected value of the annual net cash flow is $660,000, and the project should be rejected.
d. The expected value of the annual net cash flow is $540,000, and the project should be rejected.
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