Murdock Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The

Question:

Murdock Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. The firm€™s financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows associated with each project. These estimates are shown in the following table.

a. Determine the range of annual cash inflows for each of the two projects.
b. Assume that the firm€™s cost of capital is 10% and that both projects have 20-year lives. Construct a table similar to this for the NPVs for each project. Include the range of NPVs for each project.
c. Do parts a and b provide consistent views of the two projects? Explain.
d. Which project do you recommend?Why?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...