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Boardman Gasses and Chemicals is a supplier of highly purified gases to semiconductor manufacturers. A large chip producer has asked Boardman to build a new gas production facility close to an existing semiconductor plant. Once the new gas plant is in place, Boardman will be the exclusive supplier for that semiconductor fabrication plant for the subsequent 10 years. Boardman is considering one of two plant designs. The first is Boardman’s “standard” plant, which will cost $38.5 million to build. The second is for a “custom” plant, which will cost $53.5 million to build. The custom plant will allow Blair to produce the highly specialized gases that are required for an emerging semiconductor manufacturing process. Boardman estimates that its client will order $12.5 million of product per year if the traditional plant is constructed, but if the customized design is put in place, Boardman expects to sell $17.5 million worth of product annually to its client. Boardman has enough money to build either type of plant, and, in the absence of risk differences, accepts the project with the highest NPV. The cost of capital is 16.9%

a. Find the NVP for each project. (I have calculated this)

b) Find the breakeven cash inflow for each project (Need Help)

c) The firm has estimated the probabilities of achieving various ranges of cash inflows for the two projects as shown in the following table. What is the probability that each project will achieve at least the breakeven cash inflow found in part b? (Need Help)

Range of cash inflow (in millions) standard plant Custom plant

0-5 0% 5%

5-11 10 10

8-11 60 15

11-14 25 25

14-17 5 20

17-20 0 15

Above 20 0 10

d) Which project is more risky? Which project has the potential for higher NVP? Discuss the risk-return tradeoff of the two projects. (Need help)

e) If the firm wished to minimize losses (i.e., NVP < 0), which project would you recommend? Which would you recommend if the goal were to achieve a higher NVP? (Need help)