Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $25,000, has a 5-year life, and has no residual value at the end of the 5 years. The company's cost of capital is 12%. Known with less certainty are the actual after-tax cash inflows for each of the 5 years. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV given each scenario.
|
Expected cash inflows
|
|
Year
|
Pessimistic
|
Most likely
|
Optimistic
|
|
1
|
$5,500
|
$ 8,000
|
$10,500
|
|
2
|
6,000
|
9,000
|
12,000
|
|
3
|
7,500
|
10,500
|
14,500
|
|
4
|
6,500
|
9,500
|
11,500
|
|
5
|
4,500
|
6,500
|
|