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Given the following sensitivity analysis, which of the following statements is true? Line Item Description Amount Amount Amount Estimated Annual Net Cash Flow $500,000 $600,000
Given the following sensitivity analysis, which of the following statements is true?
Line Item Description | Amount | Amount | Amount |
---|---|---|---|
Estimated Annual Net Cash Flow | $500,000 | $600,000 | $700,000 |
Present value of annual net cash flows ( 4.487) | $2,243,500 | $2,692,200 | $3,140,900 |
Present value of residual value | 50,000 | 50,000 | 50,000 |
Total present value | $2,293,500 | $2,742,200 | $3,190,900 |
Amount to be invested | (3,000,000) | (3,000,000) | (3,000,000) |
Net present value | $(706,500) | $(257,800) | $190,900 |
a.Only an annual net cash flow of $700,000 will allow for a positive residual value.
b.The annual net cash flow necessary to generate a positive net present value is above $700,000.
c.The total amount to be invested is $3,050,000.
d.The investment is not justified if the annual net cash flow will be $500,000 or $600,000.
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