A firm has two potential investment projects. The project information is summarised in the tablebelow.Project A$670Project B$700Expected value of profitStandard deviation of profitCoefficient of variation of profit1753700.260.53Which project has a lower absolute risk level? Which project has a lower relative risk level? Whichproject would you advise the firm to choose? Explain your answers.---- --- ---- ..- ---

Standard deviation of project A = 175 Standard deviation of project B = 370 Coefficient of variation…

A firm has two potential investment projects. The project information is summarised in the table below. Project A Expected value of profit Standard deviation of profit Coefficient of variation of profit Project B $700 370 0.53 $670 175 0.26 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers.

A firm has two potential investment projects. The project information is summarised in the table below. Project A Expected value of profit Standard deviation of profit Coefficient of variation of profit Project B $700 370 0.53 $670 175 0.26 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers.

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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Explain the concept of sensitivity analysis as determined by NPV Breakeven sensitivity. How is it measured and what insights does it provide about the risk of a project? Goal seek can be used to evaluate the NPV breakeven of an input. What needs to happen next in order to evaluate and interpret the results? How do we know whether the results suggest that an input adds a little, or a lot, of risk relative to a project?
What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting techniques. Do you think NPV is the best decision criterion and it can overcome the problems inherent in other methods? Justify your answer.
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
Investment projects can be evaluated using static or dynamic methods. Dynamic valuation methods include Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Time. If we must choose one of the 3 investment evaluation methods. What is the best method or the one that provides us with the most information for making decisions and why?
A firm would accept a project with a net present value of zero because Select one: a. the return on the project would be zero. b. the return on the project would be positive. c. the project would enhance the wealth of the firm's owners. d. the project would maintain the wealth of the firm's owners.
I need help matching the defintions with the words, thank you.
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.
1- Please name the goals of models. 2- Please define risky project. 3- Please name two Criteria for evalu...ng pject decisions. 4- Please define the value of information about projects. 5- Are you agree with the phrase(sentence): "The indifference (exchange) risk - retur curve slop of a risk aversion has a negative slop."? explain why? (4)
Which of the following statements is true? O The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project. O The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the company's cost of capital. O The profitability index and the internal rate of return will always result in the same preference ranking for investment projects. O In calculating the profitability index, the initial investment in the project should be reduced by any proceeds from the sale of old equipment. O None of the above statements is true.
Two investment projects are under analysis and, due to budget constraints, only one of them can be selected. The investor should select the project: a. Based on absolute metric of value b. With higher internal rate of returnc. With lower discounted payback period
Suppose that California Co., a U.S.-based MNC that invests in projects all over the world, is analyzing potential projects in various countries in an attempt to pursue diversification. The following graph, which measures risk along the horizontal axis and expected returns along the vertical axis, depicts a point for each potential project in a different country. The blue curve represents the frontier of efficient project portfolios. Use the graph to answer the question that follows. EXPECTED RETURN Frontier of Efficient Project Portfolios True E In comparison to project F, project B has False RISK A expected returns and has ? True or False: A more aggressive firm would prefer a portfolio comprised mostly of projects similar to project E. risk.

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