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 each of the 5 years. The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash outflows are listed on 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 7,500
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