Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help with all parts of the question. Breakeven cash inflows and risk Boardman Gasses and Chemicals is a supplier highly purified gases to semiconductor

Please help with all parts of the question. image text in transcribed
image text in transcribed
Breakeven cash inflows and risk Boardman Gasses and Chemicals is a supplier highly purified gases to semiconductor manufacturers. A large chip producer h asked Boardman to build a new gas production facility close to an existing ductor plant. Once the new gas plant is in place, Boardman will be the exclus supplier for that semiconductor fabrication plant for the subsequent 10 years. Boardman is considering one of two plant designs. The first is for Boardman's dard" plant, which will cost $38.5 million to build. The second is for a "custom plant, which will cost $53.5 million to build. The custom plant will allow Board to produce the highly specialized gases required for an emerging semiconductor manufacturing process. Boardman estimates that its client will order $12.5 million of product per year if the standard plant is constructed, but if the custom design i put in place, Boardman expects to sell $17.5 million worth of product annually to its client. Boardman has enough money to build either type of plant, and, in absence of risk differences, accepts the project with the highest NPV. The cost of capital is 16.9% a. Find the NPV for each project. Are the projects acceptable? b. Find the breakeven cash inflow for each project. c. The firm has estimated the probabilities of achieving various ranges of cash 19 stan- man the inflows for the two projects as shown in the following table. What is the proba- bility that each project will achieve at least the breakeven cash inflow found in part b? Probability of achieving cash inflow in given range Range of cash inflow (S millions) Sta $o-ss $5-$8 $8-$11 $11-$14 $14-$17 $17-$20 Above $20 0% 10 60 25 5% 10 15 25 20 15 10 0 d. Which project is more risky? Which project has the potentially higher NPV? D e. If the firm wished to minimize losses (i.e. NPV

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Financial Management

Authors: Jeff Madura

3rd Edition

0314862722, 978-0314862723

More Books

Students also viewed these Finance questions

Question

Identify the purpose of the SIPC.

Answered: 1 week ago