Practice Problem – Scenario Analysis

Practice Question

Cases in Finance
Risk Analysis Measures
Scenario Analysis
Short Answer

In a scenario analysis, if the best-case cash flow is $500,000 and the worst-case is $100,000, what is the range of possible NPVs if the discount rate is 10%?

Answer +
A
Step-by-step solutions +

Step 1: Calculate the best-case NPV:

NPV = $500,000 / 1.10 = $454,545

Step 2: Calculate the worst-case NPV:

NPV = $100,000 / 1.10 = $90,909

Step 3: Calculate the range of NPVs:

Range = $454,545 - $90,909 = $363,636

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