Problem 12-2

The Glendale Corp. is considering a real estate development project that will cost $5 million to undertake and is expected to produce annual inflows between $1 million and $4 million for two years. Management feels that if the project turns out really well the inflows will be $3 million in the first year and $4 million in the second. If things go very poorly, on the other hand, inflows of $1 million followed by $2.5 million are more likely. Glendale's cost of capital is 8%. If Glendale's management attaches a probability of .7 to the better outcome, what is the project's most likely (expected) NPV? Round the answer to the nearest dollar.

Problem 12-1

The Glendale Corp. is considering a real estate development project that will cost $5 million to undertake and is expected to produce annual inflows between $1 million and $4 million for two years. Management feels that if the project turns out really well the inflows will be $3 million in the first year and $4 million in the second. If things go very poorly, on the other hand, inflows of $1 million followed by $2.5 million are more likely. Develop a range of NPVs for the project if Glendale's cost of capital is 16%. Round the answers to the nearest dollar.

NPV for the good scenario. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. $ NPV for the unfavorable scenario. Use a minus sign to indicate a negative NPV. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000, not 1.2. $