Question
Jon is conducting a capital budgeting analysis using NPV for a major expansion of his company. He wants the project approved because this will mean
Jon is conducting a capital budgeting analysis using NPV for a major expansion of his company. He wants the project approved because this will mean he does not have to lay-off employees on his team. Because there is a lot of uncertainty in NPV analysis anyway, Jon has decided to increase all of his revenue estimates so that they are best case scenarios. Which of the following is true about Jon's approach?
(a) NPV analysis requires the use of best case scenario cash flows.
(b) It doesnt matter what cash flows Jon uses as he will get the same NPV because NPV depends on the discount rate
(c) Jons analysis is appropriate because any of the outcomes are possible so he might as well pick the most favorable to get his project is approved
(d) Jons analysis is likely to decrease the value of his company
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