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Q 7 ( Chapter 1 3 ) ( 1 6 marks ) ABC Corporation is considering launching a new project that entails an initial investment

Q7(Chapter 13)(16 marks)
ABC Corporation is considering launching a new project that entails an initial investment and generates expected cash inflows over a four-year period. This project, while promising, carries inherent risks that need careful analysis to ensure its viability and alignment with the corporation's financial goals.
a. Discuss how cash flow estimation differs from profit estimation and the impact of this difference on project evaluation. (4 marks)
b. How do systematic and unsystematic risks affect the decision-making process in financial management? Provide examples of each type of risk. (4 marks)
c. Given the initial investment of $500,000, forecasted cash inflows are $150,000 for Year 1,$200,000 for Year 2, $250,000 for Year 3, and $300,000 for Year 4. Operating costs are expected to be 40% of the cash inflows, and the tax rate is 30%. Calculate the net cash flows for each year of the project's life. (4 marks)
d. ABC Corporation's financial team has identified different probabilities for the Year 1 cash inflow: a 30% chance of being $120,000, a 50% chance of being $150,000, and a 20% chance of being $180,000. Calculate the expected cash inflow for Year 1 and its standard deviation to evaluate the project's risk profile. (4 marks)
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