the answer for both the parts is B
but i am unable to understand
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
see demand high ya low hone ke chances 50% h toh expected cash flow summation of PX hota h where P is the probability and X is the event. so expected cash flow is 0.5×40+0.5×20 = 30.
bas ab cash flow aagya 10 saal ka NPV nikal lo. NPV is -5.66 (PMT= 30 N=10 I/Y =10 CPT+PV=184.34 minus initial investment i.e. 184.34-190= – 5.66. hence Q1 solved.
now as for Q2, question mein mentioned h ki option tbhi use krenge when demand is high. so for the first year if demand was high tb hum 40 M kama rhe hote and 2-10 years mein 40+5= 45M kama rhe hote. prr ab question mein mentioned h ki chances of demand being high is 50% only. so again expected cash flow for 10 years is as follows-
1st year- 0.5×20+0.5×40 = 30
for 2-10 years 0.5×20+0.5×45=32.5
bss ab cash flow aagya toh NPV nikal lo with CF mode of calci
CF0=-190 CF1=30 F01=1 CF2=32.5 F02=9 I=10 CPT+PV=7.83 M
sorry NPV is 7.43 in second question
In the first part as the question has mentioned that there is an equal chance of having Hogh Demand or Low demand, so I suggest that the Cashflows that we input shall be an average of the both . As per the institute they have calculated the NPV twice , once taking into account the high demand and the NPV taking into account Low demand. But if you initially only feed in the average Cashflows you’ll have the same answer.
but if we considered cf2 -10 in second part as 30+5 = 35 then answer is not coming same
When we are considering the Production Flexibility Option that is available to us. The raise in CF by 5 will also automatically have a probability of 0.5 coz 5 will additionally be generated only if demand is high and demand will be high has a probability of 0.5.
So the equation would be
CF0 =(190)
CF1 =30 :F1 = 1
CF2 =32.5: F2 = 9
Hope this helps !