Question 1

What is the expected NPV of the project if the option to expand is considered.

Accepted Answer

A)  $355,542
B)  $671,545
C)  $236,924
D)  $711,084E) C) and D)
F) None of the above

Question 2

Pederson Home Heating Inc.anticipates that cash flows from home heating fuel sales next year will be $800,000 if the winter is mild,$1,000,000 if winter is average,and $1,500,000 if winter is exceptionally cold.The probability of an average winter is 60%,while the probability of either a mild or an exceptionally cold winter is 20%.What is Pederson's expected cash flow from fuel sales next winter?

Accepted Answer

A)  $1,060,000
B)  $1,100,000
C)  $1,000,000
D)  $1,150,000E) C) and D)
F) B) and D)

Question 3

Garcia Developers will erect a small office building at a cost of $4,500,000.They have a client who will lease the space for 5 years at a price that will produce free cash flows of $150,000 per year.For approximately how much would they need to sell the building for at the end of the 5th year to reach break-even NPV? Garcia uses a discount rate of 10% for projects of this type.

Accepted Answer

A)  $3,750,000
B)  $5,755,936
C)  $6,331,530
D)  $6,964,683E) A) and B)
F) All of the above

Exam 13: Risk Analysis and Project Evaluation

Correct Answer
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Correct Answer
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What is the expected NPV of the project if the option to expand is considered.

Correct Answer
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Exam 13: Risk Analysis and Project Evaluation

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Correct AnswerverifiedShow Answer

What is the expected NPV of the project if the option to expand is considered.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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