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

Operating segments, Vincent Ltd operates solely in Western Australia and th...

Vincent Ltd operates solely in Western Australia and the chief operating decision maker has identified five operating segments: Mining, Insurance, Retailing, Manufacturing and Tran

Explain the transaction exposure versus economic exposure, Explain the Tran...

Explain the Transaction Exposure versus Economic Exposure? In brief describe the following term: a) Spot market and forward market.  b) Purchasing Power Parity or PPP.

Prepare the income statement, Dillings Ltd is a wholesaler and distributor ...

Dillings Ltd is a wholesaler and distributor of catering of office equipment. The following list of balances was extracted from its books at 31 March 2004: The following ad

Continuous compounding, The excessive frequency of compounding is generally...

The excessive frequency of compounding is generally continuous compounding where the interest is compounded immediately. The data for continuous compounding for one year is e APR

Capital recovery factor, Equation illustrates the relationship in between P...

Equation illustrates the relationship in between PVA n , A, K and n. So manipulating this a bit: We find that A = PVA n [(k (1 + k) n )/((1 +k) n - 1)] [(k (1 + k) n )/(

Prepare cash budget for three months, QUESTION 1: P A RT A You...

QUESTION 1: P A RT A You  are  given with  the  following information relating to Rooney PLC . The accountant is currently developing the budget for the next three mo

Statement of owner''s equity , Prepare an income statement and statement of...

Prepare an income statement and statement of owner's equity  (month ended Mar,31 1995) Auto remair fee earned            37,300 Salaries Expense                    11500 Repair par

Real estate mortgage investment conduit, Real Estate Mortgage Investment Co...

Real Estate Mortgage Investment Conduit (REMIC) - An entity which holds a fixed pool of mortgages and issues multiple classes of interest in itself to investors. A qualified REMIC

Shorter discounting periods, Occasionally cash flows may have to be discoun...

Occasionally cash flows may have to be discounted more often than once a year semi- monthly, daily, annually or quarterly.  The outcome of this is as fold (i)  The number of per

Dividends-bankruptcy and liquidation, DIVIDENDS Dividends must be decla...

DIVIDENDS Dividends must be declared and paid in accordance with the following rules: 1) The first dividend must be declared and paid within four months of the first meeting o

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