Basic scenario analysis Prime Paints is in the process of evaluating two mutually exclusive additions to its processing capacity. Thefirm's financial analysts have developedpessimistic, mostlikely, and optimistic estimates of the annual cash inflows associated with each project. These estimates are shown in the following table.

Project A

Project B

Initial investment (CF 0

CF0)

$12,800

12,800

$12,800

12,800

Outcome

Annual cash inflows (CF

CF)

Pessimistic

$830

830

$1,580

1,580

Most likely

1,610

1,610

1,610

1,610

Optimistic

2 comma 430

2,430

1 comma 760

1,760

a. Determine the range of annual cash inflows for each of the two projects.

b. Assume that thefirm's cost of capital is 9.2 %

9.2% and that both projects have 18

18-year lives. Construct a table showing the NPVs for each project for each of the possible outcomes. Include the range of NPVs for each project.

c. Do parts (a) and (b) provide consistent views of the twoprojects? Explain.

d. Which project do yourecommend? Why?

a. The range of annual cash inflows for project A is $

1600

1600. (Round to the nearestdollar.)

The range of annual cash inflows for project B is $

180

180. (Round to the nearestdollar.)

b. Assume that thefirm's cost of capital is 9.2 %

9.2% and that both projects have 18

18-year lives. Complete the NPV table below for projectA:(Round to the nearestcent.)

NPVs

Outcome

Project A

Pessimistic

$

Most likely

Optimistic

Range

$