Animo Airlines plans to introduce a new commercial aircraft which will compete with its existing Cessna 150 fleet. The following are three cash flows, with their associated probabilities, considered by the firm's management to be possible during the first five years of operations:
Cash flow 1 (p=0.3): -10,000,000.00 2,000,000.00 4,000,000.00 6,000,000.00 8,000,000.00 10,000,000.00
Cash flow 2 (p=0.5): 10,000,000.00 3,000,000.00 4,000,000.00 5,000,000.00 6,000,000.00 7,000,000.00
Cash flow 3 (p=0.2): -10,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00
Year: 0 1 2 3 4 5
The cash flows are in constant, after-tax, year zero (0) US dollars. The risk-free cost of capital for Animo Airlines is 6 percent, after-taxes.
24. What is the expected cash flow for year 1?
a. 700,000
b. 2,900,000
c. 5,100,000
d. 6,200,000
25. What is the standard deviation for cash flows of year 1?
a. 700,000
b. 1,400,000
c. 0
d. 2,100,000
26. What is the expected cash flow for year 5?
a. 7,300,000
b. 7,000,000
c. 6,200,000
d. 8,500,000
27. What is the standard deviation of year 5 cash flows?
a. 2,100,000
b. 0
c. 1,400,000
d. 700,000
28. What is the expected NPV for the project?
a. 8,541,263.33
b. 10,943,858.53
c. 9,688,527.32
d. 11,075,826.31
29. What is the standard deviation of the expected cash flows across the five years assuming independence of year-to-year cash flows?
a. 2,115,130.76
b. 3,265,155.67
c. 10,943,858.53
d. 1,073,948.27
