PM -5 .
Scenario Analysis
A- Range Of Annual Cash Inflows
Range Soft drinks =
$500
Range Shack Foods = $800
b- NPV of Each Vending Machine
Soft drinks Snack Foods
Initial Investments
-
$3000 -
$3000
Outcome CF NPV CF NPV
Pessimistic $500 $73 $400 -
$542
Most likely 750 1609 750 1609
Optimistic 1000 3145 1200 4374
Range 500 3072 800 4916
calculations
PV factor annuity of 10% at 10
yrs
=
6-145
pessimistic outcomes
> soft drinks
>
snack Foods
PV Of Cash Inflows = $500 ✗ 6.145 PV Of Cash Inflows :
$400 ✗ 6- 145
=
$3072.5 =
$2458
NPV -
-
$3071.5 -
$3000 NPV -
-
$2458 -
$3000
=
$725 Or $73 =
-
$542
Most likely outcomes
> soft drinks
>
snack Foods
PV Of Cash Inflows = $750116.145 PV Of Cash Inflows : $750116.145
=
$4608.75 =
$4608.75
NPV =
$4608.75 -
$3000 NPV -
-
$4608.75 -
$3000
=
$1608 -75 = $1608 -75
Optimistic outcomes
> soft drinks
>
snack Foods
PV Of Cash Inflows :$ 1000×6.145 PV Of Cash Inflows :$ 1200×6.145
=
$6145 =
$7374
NPV =
$ 6145 -
$3000 NPV -
-
$ 7374 -
$3000
=
$3145 = $ 4374
Range of NPVS
>
soft drinks
>
Shack Foods
Range = $3145 -
$73 Range =
$4374 -
C- 542)
=
$3072 =
$4916
C '
Analyzing the ranges alone ,
the vending machine lvm) for
snack Foods with $800 is higher than For soft drinks
with $500 ,
also indicates that VM for snack Foods is
more risky than the other one .
Comparing as well
the NPVS for all outcomes , it also reflect the
riskier nature of VM for snack foods despite
having the negative NPV on the pessimistic outcome
but it was balanced with the higher CF from
its optimistic outcome ,
thus ,
resulting to
higher
NPVS Than the other
vending machine .
The same is true if we analyze the range from
the NPV outcomes VM for snack Foods has $4916
,
While VM for soft drinks has $3072 -
these results
also conclude that VM for snack foods is
riskier than VM for soft drinks
-
Therefore , if the
management has a risk-averse decision maker ,
it would opt for something that has lower NPVS
and will choose VM for soft drinks
-
because it is
less risky .
Pln 12 -
.
Risk classes and RADR
a.
Project ✗ : RADR =
2240
Year CF PV Factor PV of CF
I $80000 0-820 $65600 NPV -_
$194960 -
$180000
2 70000 0.672 47040 =
$14960
=
3 60000 0-551 33060
4 60000 0-451 27060
5 60000 0370 22200
$194960
Project Y : RADR =
1340
Year CF PV Factor PV of CF
I $50000 0-885 $44250 NPV -
-
$237650 -
$235650
2 60000 0.783 46980 =
$2000
"
3 70000 0-693 48510
4 80000 O '
613 49040
b- 90000 O '
543 48870
$237650
Project 2- : RADR :
154°
PV of Annuity =
$90000 ✗ 3.352
= $301680
NPV = $301680 -
$310000
=
-
$8320
=
b- Both projects X and Y are recommendable for the
firm to undertake yield positive Npvs as they
as compared to the negative NPV of Project 2 .
Analyzing the two Project ✗ is the better choice
,
as it has the higher NPV Of $14960 than
Project Y 's $2000 However it should be noted .
that project ✗ also bears the highest risk
based on its Risk adjusted discount
-
rate of 229° .
Pin -15
unequal lives ANPV Approach
'
:
a. Net Present Value
'
Sell License Manufacture
CFO $230000 $230000 $440000
Year CFPVIFas-y.in , PV CF PVIFus-q.mg PV CF PVIF PV
I $200000 0870 $174000 $250000 0870 $217500 $195000
/
2 240000 1.626 390240 100000 1.616 167600 195000
3 190000 2283 433170 90000 1283 205470 195000 785 $138015
4 65000 195000
-
2.855 185575
-
5 55000 3-352 184360 195000
-
6 195000
-
- -
-
$998010 $955505 $738075
NPV =
$998010 -
$230000 NPV -
$955505 $230000-
NPV -
-
$738075 $440000
-
=
$-168010
-
'
$-725505 =$298
Rank ② ③
↳ in order of
NPV
acceptability based on ,
?⃝
b- Animalize Net present value
Rank
ANPVc.eu =
$768010 ÷ 1283 ( 15% ,3yrs )
1-
=
$ 336=404
ANDViicense =
$725505 ÷ 3.352 ( 15% ,
b- yrs ) z
=
$216439
=
ANPV manufacture =
$298075 ÷ 3.785115% ,
6
yrs ) z
=
$78752
=
C.
Warehouse systems Enterprise should opt to the
alternative of selling the design of the new
system
to a warehouse and receive a payment over
three years as the calculations above show
that this option provides the higher annualized
net present value among other alternatives .
The use of ANPV to justify the selected alternative
gives more assurance that the choice is right
since the
differing lives are considered .
