Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent.
-The range of the annual cash inflows for Project A is ________. (See Table 12.1)

Question

Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent. 
-The range of the annual cash inflows for Project A is ________. (See Table 12.1)

Quizplus · Accepted Answer

To find the range of annual cash inflows for Project A, we need to subtract the pessimistic estimate from the optimistic estimate: $80,000 - $70,000 = $10,000. This means that the range of annual cash inflows for Project A is $10,000. As for which project is the best choice, we cannot determine that solely based on this information. We would need to calculate the net present value (NPV) of each project to determine which one has a higher value.

Table 12.1 A Corporation Is Assessing the Risk of Two Capital Budgeting