Problem: Destination Airlines merges with West World Airlines. Destination Airlines' initial investment for the merger is 1.1 billion. Pessimistic, Most likely, and Optimistic outcomes have been developed by Destination Airlines financial analysts.
Initial Investment for Destination Airlines is $ 1,100,000,000 (billion)
Outcome Annual Cash Flows
Pessimistic $ 1,000,000,000
Most Likely $ 2,000,000,000
Optimistic $ 3,000,000,000
a) Determine the range of cash inflows for the categories of pessimistic, most likely, and optimistic.
b) Assume Destinations cost of capital is 10% and has a 4 year life. Construct a table similar to this for the Net Present Values (NPV) of each category. Include the range of the NPV for each category.