3. Duqm Chemical Company is contemplating to invest in a new project which costs RO 100,000. The expected cash flow on this project under various scenarios are given below: State of Economy Probability End of year 1 (RO) 50,000 75,000 100,000 End of Year 2 (RO) 75,000 100,000 150,000 Recession 0.3 Growth 0.5 Boom 0.2 Assume that the state of the economy will be the same in the second year as in the first. The required rate of return is 8%. There is no tax or inflation. Required: 1. Calculate Expected NPV 2. Calculate the Standard Deviation of NPV 3. Appraise the management about this project with your comments. 4. Why we need to analyse the project risk at the time of evaluating capital budgeting.
3. Duqm Chemical Company is contemplating to invest in a new project which costs RO 100,000. The expected cash flow on this project under various scenarios are given below: State of Economy Probability End of year 1 (RO) 50,000 75,000 100,000 End of Year 2 (RO) 75,000 100,000 150,000 Recession 0.3 Growth 0.5 Boom 0.2 Assume that the state of the economy will be the same in the second year as in the first. The required rate of return is 8%. There is no tax or inflation. Required: 1. Calculate Expected NPV 2. Calculate the Standard Deviation of NPV 3. Appraise the management about this project with your comments. 4. Why we need to analyse the project risk at the time of evaluating capital budgeting.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
100%
Answer only question 4 please
Transcribed Image Text:3. Duqm Chemical Company is contemplating to invest in a new project which costs RO
100,000. The expected cash flow on this project under various scenarios are given below:
State of Economy
Probability
End of year 1 (RO)
50,000
75,000
100,000
End of Year 2 (RO)
75,000
100,000
150,000
Recession
0.3
Growth
0.5
Boom
0.2
Assume that the state of the economy will be the same in the second year as in the first. The
required rate of return is 8%. There is no tax or inflation.
Required:
1. Calculate Expected NPV
2. Calculate the Standard Deviation of NPV
3. Appraise the management about this project with your comments.
4. Why we need to analyse the project risk at the time of evaluating capital budgeting.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education