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Indiana Inc. is appraising an investment project which has an expected life of four years, and which will not be repeated. The initial investment to
Indiana Inc. is appraising an investment project which has an expected life of four years, and which will not be repeated. The initial investment to start the project is OMR to million pick any number between the range randomly A scrap value of OMR to pick any number between the range randomly is expected to be received at the end of four years. There is some uncertainty about what price can be charged for the units produced by the investment project, as this is expected to depend on the future state of the economy. The following forecast of selling prices and their probabilities has been prepared: State of Economy ProbabilityUnit Selling PriceWeak Medium Strong Pick any number between the ranges for your analysis. Probability for Strong state of economy is sum of probabilities of Weak and Medium states that you choose randomly.Incremental overheads of OMR will be paid during the first year while overhead inflation of per year is expected.Indiana Inc. has traditionally used a nominal aftertax discount rate of pick any number between the range randomly per year for investment appraisalTask You just won a lottery and given following options to select you prize: a Take home prize today: OMR.Level Evaluate the possible source of risk and uncertainty in the context of the above investment. marksCalculate the payback period, Discounted payback period, net present value, and internal rate of return of the investment project and comment on its financial acceptability.
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