question archive Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities(Prob) Year Prob
Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities(Prob) Year Prob
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Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and probabilities(Prob)
Year Prob.=0.2 Prob.=0.6 Prob. =0.2
0 $100,000 $100,000 $100,000
1 20,000 30,000 40,000
2 20,000 30,000 40,000
3 20,000 30,000 30,000
4 20,000 30,000 40,000
5 20,000 40,000 50,000
The year 5 values include salvage value. Heywood's corporate cost of capital is 10 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?
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a) The project's expected (i.e. base case) NPV assuming average risk is $17,166.00.
b) Most likely NPV - $ 19,910
Worst Case NPV - $(24,200)
Best Case NPV - $ 50,300
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