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Net Present Value (NPV) calculations are often used to guide
decisions with respect to future project proposals. Unfortunately,
a person cannot know with any certainty how accurate the estimates
associated with a project proposal may be. (a) In about half a
page, discuss the variables that may need to be considered in a NPV
calculation, and how their uncertainties may be dealt with in such
a calculation. (b) The estimated cash flows from a project proposal
are as follows:

Question: Net Present Value (NPV) calculations are often used to guidedecisions with respect to future pro...

(i) Draw a cash flow diagram for the above project.

(ii) Calculate the NPV for the project.

(iii) What would be the (calculated) effect on the NPV if the
project life were 12 years, all other details being the same?

Show transcribed image text 60% Discount rate $50m Initial investment 15 year Estimated project life Net income p.a., years 1-5 $51m Net income p.a., years 6-10 $10m Net income p. a., years 11-15 Om

60% Discount rate $50m Initial investment 15 year Estimated project life Net income p.a., years 1-5 $51m Net income p.a., years 6-10 $10m Net income p. a., years 11-15 Om