The directors of Modern Cylinder Company Ltd. are considering an expansion programme which will involve the...

 

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The directors of Modern Cylinder Company Ltd. are considering an expansion programme which will involve the following: Capital Investment Annual Cash Inflow Life of Project i. 11. 111. €1.25 billion Capital Investment Annual Cash Inflow Life of Project 1 The directors are positive that due to the strategic nature of the project, the company's cost of capital is 12% due to a concessionary facility from the government. However, they are concerned that, in the past, forecasts have proved inaccurate. You have been asked to calculate the extent to which each of the following variables can differ from the forecast before the project is rejected on the basis of an NPV appraisal. €450 million 5 years (15 marks) The directors of Modern Cylinder Company Ltd. are considering an expansion programme which will involve the following: Capital Investment Annual Cash Inflow Life of Project i. 11. 111. €1.25 billion Capital Investment Annual Cash Inflow Life of Project 1 The directors are positive that due to the strategic nature of the project, the company's cost of capital is 12% due to a concessionary facility from the government. However, they are concerned that, in the past, forecasts have proved inaccurate. You have been asked to calculate the extent to which each of the following variables can differ from the forecast before the project is rejected on the basis of an NPV appraisal. €450 million 5 years (15 marks)

Answer rating: 100% (QA)

To calculate the extent to which each variable can differ from the forecast before the project is rejected on the basis of an NPV appraisal we need to use the formula for the Net Present Value NPV of ... View the full answer