Refer to the data in the table to the right $($also provided in P$12-32)$ to answer the following questions.

Required

a$.$ Prepare a table in Excel to compute the net present value for Proposal A only and consider this the likely scenario. Next, prepare an optimistic and pessimistic scenario. For the optimistic scenario, increase each net cash inflow by $10\%$ and for the pessimistic scenario, decrease each net cash inflow by $10\%.$

b$.$ Prepare a bar chart showing the net present value for the likely, optimistic, and pessimistic scenarios,

c$.$ Using the chart in part $b,$ answer the following questions.

Indicate whether any of the three scenarios meet the screening test based on net present value.

Would you recommend that the company move forward with proposal A$?$

Solution Summary

a$.$

See table.

b$.$

See chart.

c$.$

The optimistic and the likely scenarios have positive net present value amounts which means that the investments are expected to return a rate greater than the discount rate of $12\%.$

While the pessimistic scenario has a negative net present value, it is not a high dollar amount which means tha the risk level of the project does not appear to be substantial. If the cash flows in proposal are underestimated by no more than $10\%,$ the company only risks earning a return of just under its discount rate.

Excel Help

Microsoft Help on Creating a Chart $($PC$)$

Microsoft Help on Creating a Chart $($Mac$)$

$\backslash$table$[[$Initial investment,$$100,000$