Singleton Supplies Corporation (SSC) manufactures medical products for hospitals, clinics, and nursing homes. SSC may introduce a new type of X-ray scanner designed to identify certain types of cancers in their early stages. There are a number of uncertainties about the proposed project, but the following data are believed to be reasonably accurate. Probability Developmental costs Random Numbers 0.3 $2,000,000 00-29 0.4 4,000,000 30-69 0.3 6,000,000 70-99 Probability Project Life 3 years 0.2 Random Numbers 00-19 20-79 80-99 0.6 8 years 13 years Full B 0.2 Probability Sales in Units Random Numbers 0.2 150 00-19 0.6 20-79 250 350 0.2 80-99 Probability Sales Price Random Numbers 00-09 0.1 $12,000 12,500 0.8 10-89 0.1 13,000 90-99 Probability Random Numbers Cost per Unit (Excluding Developmental Costs) $ $5,000 6,000 7,000 0.3 00-29 0.4 30-69 0.3 70-99 SSC uses a cost of capital of 15% to analyze average-risk projects, 12% for low-risk projects, and 18% for high-risk projects. These risk adjustments primarily reflect the uncertainty about each project's NPV and IRR as measured by their coefficients of variation. The firm is in the 40% federal-plus-state income tax bracket. a. What is the expected IRR for the X-ray scanner project? Base your answer on the expected values of the variables. Also, assume the after-tax "profits" figure that you develop is equal to annual cash flows. All facilities are leased, so depreciation may be disregarded. Do not round intermediate calculations. Round the answer to two decimal places. % Can you determine the value of CIRR short of actual simulation or complex statistical analysis? -Select- b. Assume that SSC uses a 15% cost of capital for this project. What is the project's NPV? Do not round intermediate calculations. Round the answer to the nearest cent. Could you estimate ONPV without either simulation or a complex statistical analysis? -Select- Singleton Supplies Corporation (SSC) manufactures medical products for hospitals, clinics, and nursing homes. SSC may introduce a new type of X-ray scanner designed to identify certain types of cancers in their early stages. There are a number of uncertainties about the proposed project, but the following data are believed to be reasonably accurate. Probability Developmental costs Random Numbers 0.3 $2,000,000 00-29 0.4 4,000,000 30-69 0.3 6,000,000 70-99 Probability Project Life 3 years 0.2 Random Numbers 00-19 20-79 80-99 0.6 8 years 13 years Full B 0.2 Probability Sales in Units Random Numbers 0.2 150 00-19 0.6 20-79 250 350 0.2 80-99 Probability Sales Price Random Numbers 00-09 0.1 $12,000 12,500 0.8 10-89 0.1 13,000 90-99 Probability Random Numbers Cost per Unit (Excluding Developmental Costs) $ $5,000 6,000 7,000 0.3 00-29 0.4 30-69 0.3 70-99 SSC uses a cost of capital of 15% to analyze average-risk projects, 12% for low-risk projects, and 18% for high-risk projects. These risk adjustments primarily reflect the uncertainty about each project's NPV and IRR as measured by their coefficients of variation. The firm is in the 40% federal-plus-state income tax bracket. a. What is the expected IRR for the X-ray scanner project? Base your answer on the expected values of the variables. Also, assume the after-tax "profits" figure that you develop is equal to annual cash flows. All facilities are leased, so depreciation may be disregarded. Do not round intermediate calculations. Round the answer to two decimal places. % Can you determine the value of CIRR short of actual simulation or complex statistical analysis? -Select- b. Assume that SSC uses a 15% cost of capital for this project. What is the project's NPV? Do not round intermediate calculations. Round the answer to the nearest cent. Could you estimate ONPV without either simulation or a complex statistical analysis? -Select
