Solution-Determine the range of annual cash inflows for

Determine the range of annual cash inflows for each of the

Reference no: EM13575054

Sensitivity analysis James Secretarial Services is considering the purchase of one of two new personal computers, P and Q. Both are expected to provide benefits over a 10-year period, and each has a required investment of $3,000. The firm uses a 10% cost of capital. Management has constructed the following table of estimates of annual cash inflows for pessimistic, most likely, and optimistic results.

Computer P		Computer Q
Initial investment (CF₀)	$3,000	$3,000
Outcome	Annual cash inflows (CF)
Pessimistic	$ 500	$ 400
Most likely	750	750
Optimistic	1,000	1,200

a. Determine the range of annual cash inflows for each of the two computers.

b. Construct a table similar to this for the NPVs associated with each outcome for both computers.

c. Find the range of NPVs, and subjectively compare the risks associated with purchasing these computers.

Reference no: EM13575054

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Determine the range of annual cash inflows for each of the

Reference no: EM13575054

Reference no: EM13575054

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