Breakeven cash inflows and risk Boardman Gases and Chemicals is a supplier of highly purified gases to semiconductor manufacturers. A large chip producer has asked Boardman to build a new gas production facility close to an existing semiconductor plant. Once the new gas plant is in place, Boardman will be the exclusive supplier for that semiconductor fabrication plant for the subsequent 10 years. Boardman is considering one of two plant designs. The first is Boardman's "standard" plant which will cost $38.3 million to build. The second is for a "custom" plant which will cost $52.7 million to build. The custom plant will allow Boardman to produce the highly specialized gases required for an emergency semiconductor manufacturing process. Boardman estimates that its client will order $11.6 million of product per year if the standard plant is constructed, but if the custom design is put in place, Boardman expects to sell $17.3 million worth of product annually to its client. Boardman has enough money to build either type of plant, and in the absence of risk differences, accepts the project with the highest NPV. The cost of capital is 16.8%. a The NPV for project standard is (Round to the nearest cont.) The NPV for project "custom" is (Round to the nearest cont.) Are the projects acceptablo? (Select the box tower below) OA Because the NPV for project standard is positive project standard is acceptable. Because the NPV for project customis positive project "custom" is also acceptable. O B. Because the NPV for project standard is positive project standard is acceptable. Because the NPV for project customis negative project "custom" is unacceptable OC. Because the NPV for project standard is negative, project standard is unacceptable. Because the NPV for project "custom" is negative project custom" is also unacceptable OD. Because the NPV for project standard is negative, project standard is unacceptable. Because the NPV for project "custom" is positive, project "custom" is acceptable. 6. The PMT for project standard is $(Round to the nearest cent.) The Pit for project customis Round to the nearest cent.) 6. The firm has estimated the probabilises of achieving various ranges of cash inflows for the two projects, as shown in the table What is the probability that each project will achieve the breakoven cash now e. The firm has estimated the probabilities of achieving various ranges of cash inflows for the two projects, as shown in the table What is the probability that each project will achieve the breakeven cash inflow found in part (o? (Select the best answer below.) OA. The probability that project standard" will achieve cash flows of annually is 10%. The probability that project"custom" will achieve cash fows of annually is 20% OB. The probability that project standard will achieve cash flows or annually is 25%. The probability that project"custom wil achieve cash fows of 11 Vusly is 60% OC. The probability that project standard will achieve cash fows of Narnually is 25%. The probability that project "custom" will achieve cash fows of waly is 25% OD. The probability that project standard will achieve cash flows of sour annually is 60%. The probability that project "custom" will achieve cash fows of 511 annually is 25% d. Which project is more risky? Which project has the potentially higher NPV? Discuss the risk return trade-offs of the two projects. (Select the best answer below) OA Both project standard and proposto are equally highly risky OB. Project custom" is more risky and has a higher potential NPV. Project standard" has less risk and less return, while project custom" has more risk and more return, thus the risk-retum trade-off OC. Project standard is more risky and has a higher polnil NPV. Project "custom" has less risk and less return, while project standard has more risk and more retum. thus the risk-retum tradeoff. OD. Both project standard and project custom are equally low nisk projects. Range of cash inflow ($ millions) $0 to $5 $5 to $8 $8 to $11 $11 to $14 $14 to $17 $17 to $20 Above $20 Standard Plant 0% 10 60 25 5 0 0 Custom Plant 5% 10 15 25 20 15 10 Breakeven cash inflows and risk Boardman Gases and Chemicals is a supplier of highly purified gases to semiconductor manufacturers. A large chip producer has asked Boardman to build a new gas production facility close to an existing semiconductor plant. Once the new gas plant is in place, Boardman will be the exclusive supplier for that semiconductor fabrication plant for the subsequent 10 years. Boardman is considering one of two plant designs. The first is Boardman's "standard" plant which will cost $38.3 million to build. The second is for a "custom" plant which will cost $52.7 million to build. The custom plant will allow Boardman to produce the highly specialized gases required for an emergency semiconductor manufacturing process. Boardman estimates that its client will order $11.6 million of product per year if the standard plant is constructed, but if the custom design is put in place, Boardman expects to sell $17.3 million worth of product annually to its client. Boardman has enough money to build either type of plant, and in the absence of risk differences, accepts the project with the highest NPV. The cost of capital is 16.8%. a The NPV for project standard is (Round to the nearest cont.) The NPV for project "custom" is (Round to the nearest cont.) Are the projects acceptablo? (Select the box tower below) OA Because the NPV for project standard is positive project standard is acceptable. Because the NPV for project customis positive project "custom" is also acceptable. O B. Because the NPV for project standard is positive project standard is acceptable. Because the NPV for project customis negative project "custom" is unacceptable OC. Because the NPV for project standard is negative, project standard is unacceptable. Because the NPV for project "custom" is negative project custom" is also unacceptable OD. Because the NPV for project standard is negative, project standard is unacceptable. Because the NPV for project "custom" is positive, project "custom" is acceptable. 6. The PMT for project standard is $(Round to the nearest cent.) The Pit for project customis Round to the nearest cent.) 6. The firm has estimated the probabilises of achieving various ranges of cash inflows for the two projects, as shown in the table What is the probability that each project will achieve the breakoven cash now e. The firm has estimated the probabilities of achieving various ranges of cash inflows for the two projects, as shown in the table What is the probability that each project will achieve the breakeven cash inflow found in part (o? (Select the best answer below.) OA. The probability that project standard" will achieve cash flows of annually is 10%. The probability that project"custom" will achieve cash fows of annually is 20% OB. The probability that project standard will achieve cash flows or annually is 25%. The probability that project"custom wil achieve cash fows of 11 Vusly is 60% OC. The probability that project standard will achieve cash fows of Narnually is 25%. The probability that project "custom" will achieve cash fows of waly is 25% OD. The probability that project standard will achieve cash flows of sour annually is 60%. The probability that project "custom" will achieve cash fows of 511 annually is 25% d. Which project is more risky? Which project has the potentially higher NPV? Discuss the risk return trade-offs of the two projects. (Select the best answer below) OA Both project standard and proposto are equally highly risky OB. Project custom" is more risky and has a higher potential NPV. Project standard" has less risk and less return, while project custom" has more risk and more return, thus the risk-retum trade-off OC. Project standard is more risky and has a higher polnil NPV. Project "custom" has less risk and less return, while project standard has more risk and more retum. thus the risk-retum tradeoff. OD. Both project standard and project custom are equally low nisk projects. Range of cash inflow ($ millions) $0 to $5 $5 to $8 $8 to $11 $11 to $14 $14 to $17 $17 to $20 Above $20 Standard Plant 0% 10 60 25 5 0 0 Custom Plant 5% 10 15 25 20 15 10
