Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The firms capital budgeting manager suggests that the firm do a scenario analysis for this project because of the sensitivities of both the equipments cost

The firms capital budgeting manager suggests that the firm do a scenario analysis for this project because of the sensitivities of both the equipments cost savings and its salvage value. After an extensive analysis he comes up with the following probabilities and values for the scenario analysis: SCENARIO PROBABILITY BEFORE TAX COST SAVING PER ANNUM (sh000) SALVAGE VALUE (sh000) 1 0.10 15,000 10,000 2 0.20 20,000 5,000 3 0.25 25,000 8,000 4 0.15 10,000 5,000 5 0.20 30,000 12,000 6 0.10 40,000 14,000 2 Additional information: I. The firm depreciates all its fixed assets on a straight line basis II. The cost of capital is 10% III. Corporation tax rate applicable is 30 %. Required: Determine the probability that the projects net present value will be at least sh.10 Million (Assume normal distribution)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.

9th Canadian Edition, Volume 2

470964731, 978-0470964736, 978-0470161012

Students also viewed these Finance questions