A friend of yours can invest in a multiyear project the, Ask an Expert

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A friend of yours can invest in a multiyear project. The cost is $14,000. Annual cash flows are estimated to be $5000 per year for six years but could vary between $2500 and $7000. Your friend estimates that the cost of capital (interest rate) is 11%, but it could be as low as 9.5% and as high as 12%. The basis of the decision to invest will be whether the project has a positive net present value. Construct a tornado diagram for this problem. On the basis of the tornado diagram, advise your friend regarding either (1) whether to invest or (2) what to do next in the analysis.

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Statistics and Probability, Statistics

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