The answers in this are wrong: Use a Sensitivity Analysis to Adjust Cash Flows in NPV

Refer to the data provided below for Proposal A and also provided in an Excel file in this link to answer the following questions.

Proposal A

Initial investment $$100,000$

Cash flow from operations

Year $160,000$

Year $240,000$

Year $335,000$

Disinvestment $-$

Life $($years$)3$

Discount rate $($for all proposals$)12\%$

a$.$ Prepare a table in Excel to compute the net present value for Proposal A and consider this the likely scenario. Next, prepare an optimistic and pessimistic scenario. For the optimistic scenario, increase each cash inflow by $10\%$ and for the pessimistic scenario, decrease each net cash inflow by $10\%.$

Note: Round your answers to the nearest whole dollar. Use a negative sign to indicate a cash outflow.

Proposal A Proposal A Proposal A

Likely Optimistic Pessimistic

Initial investment Answer

$100,000$

Answer

$100,000$

Answer

$100,000$

Year $1$ Answer

$60,000$

Answer

$66,000$

Answer

$54,000$

Year $2$ Answer

$40,000$

Answer

$44,000$

Answer

$36,000$

Year $3$ Answer

$35,000$

Answer

$38,500$

Answer

$31,500$

Net present value

$235,000$

$248,500$

$221,500$

b$.$ Prepare a bar chart showing the net present value for the likely, optimistic, and pessimistic scenarios.

c$.$ Using the chart in part b$,$ answer the following questions.

$1.$ Indicate whether any of the three scenarios meet the screening test based on net present value.

Likely scenario Answer

yes

Optimistic scenario Answer

yes

Pessimistic scenario Answer

no

$2.$ Would you recommend that the company move forward with proposal A$?$ Answer

yes

If the cash flows in the proposal are underestimated by no more than $10\%,$ the company risks earning a return of Answer

just under its discount rate.