Question 3 (25 points): A project needs an investment of $35k at time zero and $20k at the end of year 1. It is expected to generate a net income of $25k for year 1 to 8. At the end of 8th year, it is expected to incur an environmental cost of $35k and a salvage value of $25k. Please calculate NPV at a minimum DCFROR of 17%. Then evaluate the probability for the project to be economically satisfactory and the most likely NPV to be achieved. Hint: One may analyze the sensitivity NPV to the following parameters and then plot cum probability vs. NPV. Costs (+/- 40%) Incomes (+/- 30%) Salvage value (+/-20%) Environmental Cost (+/- 30%) Project life (+/- 50%) Plot a tornado diagram Rank the five uncertain parameters based on the NPV sensitivity analysis Question 3 (25 points): A project needs an investment of $35k at time zero and $20k at the end of year 1. It is expected to generate a net income of $25k for year 1 to 8. At the end of 8th year, it is expected to incur an environmental cost of $35k and a salvage value of $25k. Please calculate NPV at a minimum DCFROR of 17%. Then evaluate the probability for the project to be economically satisfactory and the most likely NPV to be achieved. Hint: One may analyze the sensitivity NPV to the following parameters and then plot cum probability vs. NPV. Costs (+/- 40%) Incomes (+/- 30%) Salvage value (+/-20%) Environmental Cost (+/- 30%) Project life (+/- 50%) Plot a tornado diagram Rank the five uncertain parameters based on the NPV sensitivity analysis