Please do in excel showing the work
Wansley Lumber is considering the purchase of a paper company,which would require an initial investment of $300 million. Wansleyestimates that the paper company would provide net cash flows of$40 million at the end of each of the next 20 years. The cost ofcapital for the paper company is 13%. a. Should Wansley purchasethe paper company? b. Wansley realizes that the cash flows in Years1 to 20 might be $30 million per year or $50 million per year, witha 50% probability of each outcome. Because of the nature of thepurchase contract, Wansley can sell the company 2 years afterpurchase (at Year 2 in this case) for $280 million if it no longerwants to own it. Given this additional information, doesdecision-tree analysis indicate that it makes sense to purchase thepaper company? Again, assume that all cash flows are discounted at13%. c. Wansley can wait for 1 year and find out whether the cashflows will be $30 million per year or $50 million per year beforedeciding to purchase the company. Because of the nature of thepurchase contract, if it waits to purchase, Wansley can no longersell the company 2 years after purchase. Given this additionalinformation, does decision-tree analysis indicate that it makessense to purchase the paper company? If so, when? Again, assumethat all cash flows are discounted at 13%.
