Project risk analysis

Problem Set 5 Chapter 12-Project Risk Analysis Assigned Problem 4 Heywood Diagnostic Enterprises is evaluating a project with the following net cash flows and Year Prob 0.2 Prob 0.12 $100,000 30,000 -$100,000 -.... s20,000 20,000 $30,000 $30.000 540,000 $40,000 $20,000 30,000 S50,000 The Year 5 values include salvage value. Heywood's corporate cost of capita a. What is the project's expected i.e, base case NPV assuming average risk? (Hint: The base case net eash flows are the expected cash flows in each year.) b. What are the project's most likely, worst, and best case NPVs? c. What is the project's expected NPV on the basis of the scenario analysis? d. What is the project's standard deviation of NPV: e. Furthermore, the company's policy ls to adjust the corporate cost of capital up or down by 3 percentage points to isk account for differential risk. Assume that Heywood's managers judge the project to have higher-than-average r Is the preject financially attractive? Assume that NSWER s managers judge the project to have higher-than-average risk ed P Assigned Pr Assigned Pr Assigned Problem 4