Exhibit 11-1A Company Is Considering Investing $1

Essay

Exhibit 11-1A company is considering investing $1.2M in a facility to manufacture a new product. The product will have a five year life, after which the facility will be shut down. A pro forma cash flow sheet for this project, with forecasted production levels, unit prices, and production costs, is shown below:

-[Part 2] Refer to Exhibit 11-1. Suppose that the forecasted price levels shown in the pro forma cash flow sheet are not deterministic, but rather are expected to fluctuate due to market forces. The prices are expected to be normally distributed in each year, with the following means and standard deviations:Using the appropriate @RISK functions in the pro forma, what is the expected NPV? Would you recommend investing in this project? Explain.
$$\begin{array} { c c c c c c } \text { Year } & 1 & 2 & 3 & 4 & 5 \\\text { Mean } & \$ 27.40 & \$ 26.60 & \$ 25.50 & \$ 24.80 & \$ 23.50 \\\text { Std. Dev. } & \$ 5.50 & \$ 5.30 & \$ 5.00 & \$ 4.50 & \$ 4.10\end{array}$$