Capital Budgeting and Net Present Value
Not what you're looking for?
Murdock 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 the project. These estimates are shown in the following table.
Project A Project B
Initial Investment (Cfo) $8,000 $8,000
Outcome Annual Cash Flows (CF)
Pessimistic $200 $900
Most Likely $1,000 $1,000
Optimistic $1,800 $1,100
1. Determine the range of annual cash inflows for each of the two projects.
2. Assume that the firm's cost of capital is 10% and that both projects have 20 year lives. Construct a table similar to this for the Net Presents Value(s) for each present value. Include the range of NPVs for each project.
3. Do parts 1 and 2 provide consistent views of the two projects? Explain.
4. Which project do you recommend? Why?
See attached file.
Purchase this Solution
Solution Summary
Compares 2 projects using NPV.
Solution Preview
The answer is in the attached file.
Murdock 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 the project. These estimates are shown in the following table.
Project A Project B
Initial Investment (Cfo) $8,000 $8,000
Outcome Annual Cash Flows (CF)
Pessimistic $200 $900
Most Likely $1,000 $1,000
Optimistic $1,800 $1,100
1. Determine the range of annual cash inflows for each of the two projects.
Range of annual cash flows is equal to the maximum (optimistic) - minimum (pessimistic) values
Project A $1,600 =$1,800. - $200.
Project ...
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.