A project has an initial investment of 100.You have come up with the following estimates of the project's cash flows (there are no taxes): $\begin{array} { | l | c | c | c | }
\hline & \text { Pessimistic } & \text { Mast Likely } & \text { Optimistic } \
\hline \text { Revenues } & 15 & \mathbf { 2 0 } & \mathbf { 2 5 } \
\hline \text { Costs } & 10 & 8 & 5 \
\hline
\end{array}$ Suppose the cash flows are perpetuities and the cost of capital is 10 percent.Conduct a sensitivity analysis of the project's NPV to variations in revenues.(Answers appear in order: [Pessimistic, Most Likely, Optimistic].)
A)-30, +20, +70.
B)-100, -50, +80.
C)-50, +50, +70.
D)+5, +11, +18.

Question

A project has an initial investment of 100.You have come up with the following estimates of the project's cash flows (there are no taxes): $\begin{array} { | l | c | c | c | } 
\hline & \text { Pessimistic } & \text { Mast Likely } & \text { Optimistic } \
\hline \text { Revenues } & 15 & \mathbf { 2 0 } & \mathbf { 2 5 } \
\hline \text { Costs } & 10 & 8 & 5 \
\hline
\end{array}$ Suppose the cash flows are perpetuities and the cost of capital is 10 percent.Conduct a sensitivity analysis of the project's NPV to variations in revenues.(Answers appear in order: [Pessimistic, Most Likely, Optimistic].)
A)-30, +20, +70.
B)-100, -50, +80.
C)-50, +50, +70.
D)+5, +11, +18.

Quizplus · Accepted Answer

The NPV is calculated as follows:NPV = -Initial Investment + (Cash Flow / Cost of Capital)For the pessimistic case, the NPV is:NPV = -100 + (15 / 0.10) = -30For the most likely case, the NPV is:NPV = -100 + (20 / 0.10) = +20For the optimistic case, the NPV is:NPV = -100 + (25 / 0.10) = +70

A Project Has an Initial Investment of 100 Suppose the Cash Flows Are Perpetuities and the Cost of Up