2. The CFO of Bulldog is not sure that she is accurate in her estimates of the future cash flows and decides to conduct a scenario analysis.

a. She has asked you to recalculate the NPV assuming that each future cash flow and the salvage value are 10% higher than her initial estimate or 10 % lower. How is the estimate of NPV changed in each case (case1all future cash flows and the salvage value increase by 10%, case 2 all cash future flows and the salvage value decrease by 10%)? Assume that there is a 25% probability of the increased cash flows, a 25% probability of the decreased cash flows and a 50% probability of the original estimate in problem 1. What is the expected NPV of the project? (10 points)

b. Does the range of outcomes and expected NPV change how you would view the riskiness project and the likelihood that you would accept the project? Explain in detail and relate your answer to the issues associated with using NPV to evaluate a project (how accurate are the projected future cash flows? What types of assumptions must be made to forecast the future cash flows used in the analysis? Does the basic NPV or the expected NPV provide better information upon which to base a decision?