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Brandt Enterprises is considering a new project that has an estimated cost of $900,000 and cash inflows of $286,000 each year in next 5 years.
- Brandt Enterprises is considering a new project that has an estimated cost of $900,000 and cash inflows of $286,000 each year in next 5 years. The projects WACC is 8%. After estimating the cash flows of the project, the CFO conducted a scenario analysis and found the CV (coefficient of variation) of the projects NPV is 3.8
- Given that the CV of an average project of the company is in the range of 1.0 to 2.0, how will you interpret the result of the scenario analysis?
- If the CFO uses a subjective adjustment of 3% in the discount rate to differentiate projects with various risk levels, what will be the risk-adjusted NPV? What do you conclude from the calculation?
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