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
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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11. 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
A) 0.12
B) 0.30
C) 0.36
D) 0.70
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