Evlaute expected value of sales volume, Financial Accounting

Assignment Help:

Q. Evlaute Expected value of sales volume?

(17500 × 0·3) + (20000 × 0·6) + (22500 × 0·1) = 19500 units

Expected NPV = (((19500 × 1·35) - 10000) × 3·605) - 50000 = $8852

While the expected net present value is positive the project appears to be acceptable. From earlier examination we know that the NPV is positive at 20000 per year and the NPV will therefore as well be positive at 22500 units per year. The NPV of the nastiest case is

(((17500 × 1·35) - 10000) × 3·605) - 50000 = ($882)

The NPV of the finest case is

(((22500 × 1·35) - 10000) × 3·605) - 50000 = $23452

There is therefore a 30% chance that the project will produce a negative NPV a fact not revealed by considering the expected net present value alone. The expected net present value isn't a value that is likely to take place in practice it is perhaps more useful to know that there is a 30% chance that the project will produce a negative NPV (or a 70% chance of a positive NPV) since this may perhaps represent an unacceptable level of risk as far as the managers of Umunat plc are concerned. It can thus be argued that assigning probabilities to expected economic states or sales volumes has produced useful information that is able to help the managers of Umunat to make better investment decisions. The complexity with this approach is that probability estimates of project variables or future economic states are probable to carry a high degree of uncertainty and subjectivity.


Related Discussions:- Evlaute expected value of sales volume

Determine the investment''s net present value, Question Capital Expenditure...

Question Capital Expenditure Decisions and Investment Criteria Bodmin plc Bodmin plc is a highly profitable electronics company that manufactures a range of innovative produ

Market risk premium , A company presently pays a dividend of $2 per share, ...

A company presently pays a dividend of $2 per share, D0 = 2. It is estimated that the company's dividend will enhance at a rate of 17% percent per year for the next 2 years, then t

PARTNERSHIP, CHARACTERISTICS OF PARTNERSHIP

CHARACTERISTICS OF PARTNERSHIP

Investment of accumulated income-trusts laws and accounts, Investment of ac...

Investment of accumulated income The income accumulations must be invested from time to time and the investments earmarked as being on Accumulations Account. The income aris

Steps in preparing the consolidated balance sheet, Steps in preparing the c...

Steps in preparing the consolidated balance sheet Step 1 : Prepare the 3 important accounts i.e. cost of control to determine goodwill Group retained profits Mino

#titlebookeeping.., how to identify deb who to credit and who to debit

how to identify deb who to credit and who to debit

Describe about capital stock, Q. Describe about Capital Stock? Capital ...

Q. Describe about Capital Stock? Capital Stock - Ownership shares of a CORPORATION authorized by its ARTICLES OFINCORPORATION. Money value assigned to a corporation's issued sh

Financial managment, How is a company’s cost of capital affected by its tax...

How is a company’s cost of capital affected by its tax rate?

Dissolution-liquidation of companies, Dissolution If the winding up con...

Dissolution If the winding up continues for more than a year, the liquidator must file progress reports with the registrar at such intervals as the court may prescribe s.333. W

Admission of a new partner, Admission of a new partner When a new partn...

Admission of a new partner When a new partner joins the firm/partnership, the new partner will enjoy the benefits arising as a result of goodwill created by the old existing pa

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd