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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In CAPM and your CAPM Project, the beta of AAPL was computed by regressing the returns of what Y= on what X= Y=S&P500 on X=AAPL ? Y=AAPL on X=Risk free rate Y=AAPL minus the Risk free rate on X=AAPL minus S&P none of the above
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 $6,289.81 $5,829 S$ 0.24 -$2.390.74 -$2,852 S$ 0.32-$1,233.33 -S1,694 $S 0.20 -$ 400.00 -$861 $S 100 $ 461.1i Variance $. Standard deviation S 5.87 6.52 7.25 7.97 8.77
How would you rank the following alternative risky investment projects? Explain your answer carefully. Project L Payoff Probability Payoff Probability Payoff Probability Project K Project M 4 0.25 1 0.4 1 0.5 5 0.5 6. 0.3 6. 0.25 12 0.25 8. 0.3 8. 0.25
eathree o qucu oesi? of e tos What does the beta of the project represent and how will higher project betas affect your decision? vat
a. They payback period of project A is ___ years (round to two decimal places) The payback period of project B is ____ years. (round to two decimal places) According to the payback method, which project should the firm choose? b. The NPV of project A is $___ The NPV of project B is $___ c. The IRR of project A is ___ The IRR of project B is ___ d. Make a reccomendation
Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
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%. а-1. Calculate the required return. Required return а-2. Should the project be accepted? Yes No
3e.a.Determinethe payback period for each b.Calculatethe net present value (NPV) for each c.Calculatethe profitability index (PI) for each project. d.Calculatethe internal rate of return (IRR) for each e.Basedon ALL your answers above, explain briefly which project should be Note: i just need (e) no question answer not all no need excle formula , thank you
Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project. Be complete and thorough in your answer.
You are evaluating the following four projects: Project Beta Projected (or Expected) Return A 1.80 19.5% B 1.20 14.0% C 0.80 11.5% D 0.50 7.0% Your company’s current practice is to apply its WACC of 12% as a single hurdle rate to all projects. Under your company’s current practice, which project(s) of the four projects above would be incorrectly accepted? Currently, the 3-month Treasury bill rate is 3%, and the market risk premium is 10%. (Hint: Measure the RADRs using the CAPM.) Group of answer choices C A D B At least two of the projects are incorrectly accepted.
Which project below would you consider acceptable? One whose IRR is greater than the MARR One whose MARR is greater than the IRR O One whose RIC is less than the MARR One whose MARR is greater than the MIRR
A project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk free rate is 6% and the expected rate of return on the market portfolio is 16%. A. What is the required rate of return? B. Should the project be accepted? C. What is the required rate of return on the project if it's beta is 1.90? D. If the projects beta is 1.90 should the project be accepted?

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