1 Fertilizer Business 2 3 Discount rate Uniformly distributed between 7% and 13%. 4 5 Triangular...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1 Fertilizer Business 2 3 Discount rate Uniformly distributed between 7% and 13%. 4 5 Triangular ($15K, $20K, $28K). TIME 6 7 Initial Outlay 0 1 2 3 4 5 ($75,000) 8 Annual Cash Flow $20,000 $20,000 $20,000 9 Salvage Value $3,000 10 Total Cash Flow ($75,000) $20,000 $20,000 $20,000 $0 $3,000 Uniform ($20K - $30K) in boom times (30% probability) 11 Uniform ($10K $20K) in recession (70% 12 NPV 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 13 We have a Fertilizer company who wants to calculate its NPV for the next 5 years. However, there are some uncertainties needed to be incorporated into the calculation: Cost of capital ~ uniformly distributed between 7% and 13% Cash flows at time 4 - 5 are uncertain: CF4 ~ triangular distribution ($15K, $20K, $28K) CF5 ~ uniformly distributed between $20K and $30K 1. What is the probability that NPV is between $5K and $7K? What variable is NPV most sensitive to? 2. If the cash flow at time 4 follows a triangular distribution ($15K, $20K, $28K) in boom times with 30% probability and uniformly distributed between $10K and $20K in recession with 70% probability. Can you run the simulation and calculate what is the probability that NPV is between $5K and $7K? What variable is NPV most sensitive to? 1 Fertilizer Business 2 3 Discount rate Uniformly distributed between 7% and 13%. 4 5 Triangular ($15K, $20K, $28K). TIME 6 7 Initial Outlay 0 1 2 3 4 5 ($75,000) 8 Annual Cash Flow $20,000 $20,000 $20,000 9 Salvage Value $3,000 10 Total Cash Flow ($75,000) $20,000 $20,000 $20,000 $0 $3,000 Uniform ($20K - $30K) in boom times (30% probability) 11 Uniform ($10K $20K) in recession (70% 12 NPV 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 13 We have a Fertilizer company who wants to calculate its NPV for the next 5 years. However, there are some uncertainties needed to be incorporated into the calculation: Cost of capital ~ uniformly distributed between 7% and 13% Cash flows at time 4 - 5 are uncertain: CF4 ~ triangular distribution ($15K, $20K, $28K) CF5 ~ uniformly distributed between $20K and $30K 1. What is the probability that NPV is between $5K and $7K? What variable is NPV most sensitive to? 2. If the cash flow at time 4 follows a triangular distribution ($15K, $20K, $28K) in boom times with 30% probability and uniformly distributed between $10K and $20K in recession with 70% probability. Can you run the simulation and calculate what is the probability that NPV is between $5K and $7K? What variable is NPV most sensitive to?
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Ned and Nelly Norbert, both aged 35, have three small children. Nancy aged 10, Nadia aged 8, and Nadine aged 3. The Norberts want to ensure that they have adequate resources in place to complete...
-
Nelson Enterprises exchanged a building it owned in Grand Junction for a building in Canon City owned by Lamb Corporation. The buildings were both valued at $ 575,000, so there was no cash...
-
The budget committee a. reviews the budget. b. resolves differences that arise as the budget is prepared. c. approves the final budget. d. is directed (typically) by the controller. e. does all of...
-
A \(2 \mathrm{~cm}\)-diameter, \(19 \mathrm{~cm}\)-long tube is placed touching a pool of liquid. The end away from the liquid pool \((\mathrm{z}=0.19 \mathrm{~m})\) is in an air stream (component C)...
-
Green Grocery Company employed Jones as its manager. Jones was given authority by Green to purchase supplies and goods for resale and had conducted business for several years with Brown Distributing...
-
Currently, the term structure is as follows: One-year bonds yield 11.00%, two-year zero- coupon bonds yield 12.00%, three-year and longer maturity zero-coupon bonds all yield 13.00%. You are choosing...
-
When a rock falls from a high point, it accelerates as it falls until it reaches its greatest speed the moment before it hits the ground. In terms of Conservation of Energy, what is happening to this...
-
What is the difference between object-oriented languages and UML?
-
Could an include use case have an extend use case? Explain by providing an example.
-
Differentiate technology from methodology and from method. Can you come up with an example that differentiates these concepts in a specific context, perhaps software development?
-
What is the future value of \($12,000\) invested at 8% interest, compounded yearly for ten years?
-
Where is the place of UML in the process of software development?
-
4. Beamer Corporation produces one product and it seems that the demand for that product is exceeding their manufacturing capacity. Below is the information concerning the machine that produces their...
-
Determine the optimal use of Applichem's plant capacity using the Solver in Excel.
-
The Geary Company's income statement and comparative balance sheets as of December 31 of 2019 and 2018 follow: During the year, the following transactions occurred: 1. Sold equipment for \(\$ 9,000\)...
-
Meagan Enterprises reported the following information for the past year of operations: For each transaction, indicate whether the ratio will (I) increase, (D) decrease, or (N) have no effect....
-
Refer to the data given for the Forrester Company in Problem P12-1B. Required a. Compute the change in cash that occurred during 2019. b. Prepare a statement of cash flows using the direct method. c....
Study smarter with the SolutionInn App