Question $3$: $(20$ points$)$

In addition to the recommendation provided for Question $2,$ the CFO would like your assessment and recommendation regarding the risk for the projects. The data provided in the table below is an expanded view of the data for Project $1.$ Additionally, using the data in Appendices $1$ and $2$ complete the necessary calculations for a complete risk assessment for Project $1.$ While only a limited amount of information is available for Projects $2$ and $3,$ they are highly correlated with Project $1.$ As a result of this high degree of correlation, the CFO believes Project I can be used to describe the risks within Projects $2$ and $3$ as well.

Note: As a matter of practice, management prefers projects with a risk$/$return profile in the range of $\mathrm{.}50$ to $1\mathrm{.}00.$

Project Analysis Results

Project $1$

Initial Investment

$$260,000$

Required Rate of Return

$10\%$

NPV $-$ Base Case

$$46,754$

E$($NPV$)$

$\backslash$sigma $($NPV$)*$

IRR

MIRR

Payback

CV

$*$ Standard deviation of the NPV

Additional information:

$1.$ Our firm typically prefers projects with a payback of $3$ years or less.

$2.$ Projects $1$ and $3$ have non$-$conventional cash flows.

PVs

Deviation from

NPV Deviation from Base Case

Base Case

Sales price

VC per Unit

Units Sold

Salvage Valve

WACC

$-30\%$

$ $(99535\mathrm{.}00)$

$$121089\mathrm{.}00$

$$(25201\mathrm{.}00)$

$$42912\mathrm{.}00$

$$70423\mathrm{.}00$

$-20\%$

$$(50772\mathrm{.}00)$

$$96311\mathrm{.}00$

$$(1216\mathrm{.}00)$

$$44193\mathrm{.}00$

$$62238\mathrm{.}00$

$-10\%$

$$(2008\mathrm{.}00)$

$$71532\mathrm{.}00$

$$22769\mathrm{.}00$

$$45474\mathrm{.}00$

$$54354\mathrm{.}00$

$0\%$

$$46,754\mathrm{.}00$

$$46,754\mathrm{.}00$

$$46,754\mathrm{.}00$

$$46,754\mathrm{.}00$

$$46,754\mathrm{.}00$

$10\%$

$$95518$

$$21976\mathrm{.}00$

$$70740\mathrm{.}00$

$$48035\mathrm{.}00$

$$39428\mathrm{.}00$

$20\%$

$$144281\mathrm{.}00$

$$(2802\mathrm{.}00)$

$$94724\mathrm{.}00$

$$49316\mathrm{.}00$

$$32360\mathrm{.}00$

$30\%$

$$193044$

$$(27580\mathrm{.}00)$

$$118710\mathrm{.}00$

$$50596\mathrm{.}00$

$$25541\mathrm{.}00$

Range

Scenario

Probability

NPV

Best Case

$30\%$

$$96\mathrm{.}31$

Base Case

$60\%$

$46\mathrm{.}754$

Worst Case

$10\%$

$$(2\mathrm{.}27)$

E$($NPV$)=$

Standard Deviation $=$

Coefficient of Variation $=$