A company has a possible project and has identified the two major areas of risk as being the inflation and the movement in world oil prices. It has calculated various possible NPVs as follows: Oil price change Decrease Unchanged Increase Demand Probability 0.1 0.3 0.6 Low 0.2 £2m £1m -£4m Medium 0.3 £3m £2m -£1m High 0.5 £6m £5m £2m What is the probability that the project will have a negative NPV? A) 0.12 B) 0.30 C) 0.36 D) 0.70

A company has a possible project and has identified the two major areas of risk as being the inflation and the movement in world oil prices. It has calculated various possible NPVs as follows: Oil price change Decrease Unchanged Increase Demand Probability 0.1 0.3 0.6 Low 0.2 £2m £1m -£4m Medium 0.3 £3m £2m -£1m High 0.5 £6m £5m £2m What is the probability that the project will have a negative NPV? A) 0.12 B) 0.30 C) 0.36 D) 0.70

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP3: Part 3: Exchange Rate Risk Management

Section: Chapter Questions

Problem 4Q

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The price of crude oil during the period 2000-2010 can be approximated by P(t) = 6t + 18 dollars per barrel (0
F2
12. The ABC Company is considering undertaking an investment that promises to have the following cash flows: period 0, −$50; period 1, $90. If the firm waits a year, it can invest in an alternative (that is, mutually exclusive) investment that promises to pay −$60 in period 1 and $100 in period 2. Assume a time value of money of 0.05. Which investment should the firm undertake? Use the net present value and the internal rate of return methods.
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	Oil price change	Decrease	Unchanged	Increase
Demand	Probability	0.1	0.3	0.6
Low	0.2	£2m	£1m	-£4m
Medium	0.3	£3m	£2m	-£1m
High	0.5	£6m	£5m	£2m