6. Assume that the project has average risk. Find the project's expected NPV. (Hint: Use expected values for the net cash flow in each year.)
7. Find the best-case and worst-case NPVs. What is the probability of occurrence of the worst case if the cash flows are perfectly dependent (perfectly positively correlated) over time?
8. Assume that all the cash flows are perfectly positively correlated. That is, assume there are only three possible cash flow streams over time-the worst case, the most likely (or base) case, and the best case-with respective probabilities of 0.2, 0.6, and 0.2. These cases are represented by each of the columns in the table. Find the expected NPV, its standard deviation, and its coefficient of variation for each probability.
Use the following information for Question 9: At year-end 2013, Wallace Landscaping's total assets were $2.17 million and its accounts payable were $560,000. Sales, which in 2013 were $3.5 million, are expected to increase by 35% in 2014. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $625,000 in 2013, and retained earnings were $395,000. Wallace has arranged to sell $195,000 of new common stock in 2014 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2014. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 45% of earnings will be paid out as dividends.
9. What were Wallace's total long-term debt and total liabilities in 2013?