5.6 Nimby plc is considering two mutually exclusive projects: Delphi and Oracle. The possible NPVS for each project and their associated probabilities are as follows: Delphi Oracle NPV Probability of occurrence NPV Probability of occurrence £m £m 20 0.2 30 0.5 40 0.6 40 0.3 60 0.2 65 0.2 Required: (a) Calculate the expected net present value and the standard deviation associated with each project. (b) Which project would you select and why? State any assumptions you have made in coming to your conclusions. (c) Discuss the limitations of the standard deviation as a measure of project risk.

5.6 Nimby plc is considering two mutually exclusive projects: Delphi and Oracle. The possible NPVS for each project and their associated probabilities are as follows: Delphi Oracle NPV Probability of occurrence NPV Probability of occurrence £m £m 20 0.2 30 0.5 40 0.6 40 0.3 60 0.2 65 0.2 Required: (a) Calculate the expected net present value and the standard deviation associated with each project. (b) Which project would you select and why? State any assumptions you have made in coming to your conclusions. (c) Discuss the limitations of the standard deviation as a measure of project risk.

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

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A. Calculate the profitability index for project X. B. Calculate the profitability for project Y C. Using the NPV method combined with the PI aporoach, which project would you select? Use a discount rate of 13 percent
Suppose x1, x2, and x3 are binary variables that are equal to 1 if the corresponding project (1, 2, or 3) is selected and 0 if the corresponding project is not selected. Also, suppose that y1, y2, and y3 are variables that indicate the amount of money invested in the projects (projects can only be invested in if they are selected). The maximum investment is $2000 for project 1, $4000 for project 2, and $6000 for project 3. Which of the following constraints is needed for this problem? x3 ≤ 6000y3 6000x3 ≤ y3 6000y3 ≤ x3 y3 ≤ 6000x3
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 996, and the expected rate of return on the market portfolio is 14%. a-1. Calculate the required return. Required return a-2. Should the project be accepted? Yes No b-1. Calculate the required return if its beta is 1.6. Required return b-2 Should the project be accepted? Yes No
Calculate the project's coefficient of variation. (Hint: Use the expected NPV.) Squared dev. Prob. NPV NPVI - E{NPV) Squared deviation times probability 0.24 S6,289.81 $5,829 SS 0.24 -$2,390.74 -S2,852 SS 0.32 -S1,233.33 -S1,694 $$ 0.20 -$ 400.00 -$861 SS 1.00 $ 461.11 Variance S Standard deviation $ 5.87 6.52 7.25 7.97 8.77
How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.
A project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9% and the expected rate of return on the market portfolio is 17%. A. What is the required rate of return on the project? B. Should the project be accepted? C. What is the required rate of return on the project if the beta is 1.50? D. If projects beta is 1.50, should the project be accepted?
A project under consideration has an internal rate of return of 18% and a beta of 0.5. The risk-free rate is 6%, and the expected rate of return on the market portfolio is 18%. a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.50? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If project's beta is 1.50, should the project be accepted?
Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.
12 When projects are mutually exclusive, selection should be made according to the project with the: A longer life. B larger initial size. C₁ highest NPV. D highest IRR. O D کے OA O B ос
The Ulrich Corporation is trying to choose between the following two mutually exclusive design projects. If the required rate of return is 10%, which of the following statements is correct? (a) Select A2 because it has a higher PI.(b) Select A2 because it has a higher RO R. (c) Select Al because its incremental PI exceeds 1.(d) Not enough information to decide.
The following information is available on two mutually exclusive projects. All numbers are in ‘000s. Project Year 0 Year 1 Year 2 Year 3 Year 4 A $700 $300 $300 $400 $400 B $700 $600 $300 $200 $100 a: If the minimum acceptable rate of return is 10%, which project should be selected using the Net Present Value (NPV) method? Which project should be selected if the Internal Rate of Return (IRR) method is used? b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate? c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?
Project Analysis. Assume that you are evaluating the following three mutually exclusive projects: A. Complete the following analyses. (For the last two lines, Terminal Value, please write in the dollar amount of the terminal value.) B. Compare and explain the conflicting rankings of the NPVs and TRRs versus the IRRs. C. Using different discount rates, is it possible to get different rankings within the NPV calculation? Why or why not? D. If 10 percent is the required return, which project is preferred? E. Which is the fairer representation of these two projects, TRR or IRR? Why?

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