Discuss the below:
Q: Information about the cash flows for a four-year financial project are listed in the following table. The cash flows are assumed to follow a triangular distribution. The cost of implementing the project is expected to be between $60,000 and $70,000, with all values in this range being equally likely. Analysis of changes in the Consumer Price Index suggests that the annual rate of inflation can be approximated with a normal distribution with a mean of 4 percent and standard deviation of 1.5 percent. The organization's required rate of return is 20 percent. Develop a model in CB to analyze this situation and answer the following questions.
|
Year
|
Minimum
Inflow
|
Most Likely
Inflow
|
Maximum
Inflow
|
|
1
|
$15,000
|
$20,000
|
$30,000
|
|
2
|
$20,000
|
$25,000
|
$35,000
|
|
3
|
$20,000
|
$30,000
|
$35,000
|
|
4
|
$40,000
|
$50,000
|
$60,000
|
(a) What is the expected NPV of this project?
(b) What is the range of NPVs?
(c) How would you characterize the level of risk associated with this project?
(d) Would you recommend undertaking the project? Why or why not?