A project starts with an initial capital outflow of RM450,000 in exchange for the following likely cash flows: State of Economy Probability End of Year 1 (RM) End of Year 2 (RM) Recession 18% 150,000 250,000 Normal 60% 350,000 450,000 Boom 22% 550,000 100,000 Assume that the economy will be in the same condition in the second year as it was in the first. The discounted rate of return is 15 percent. There is no taxation or inflation. i) Calculate the expected Net Present Value (NPV). ii) Calculate the standard deviation of Net Present Value (NPV).
A project starts with an initial capital outflow of RM450,000 in exchange for the following likely cash flows: State of Economy Probability End of Year 1 (RM) End of Year 2 (RM) Recession 18% 150,000 250,000 Normal 60% 350,000 450,000 Boom 22% 550,000 100,000 Assume that the economy will be in the same condition in the second year as it was in the first. The discounted rate of return is 15 percent. There is no taxation or inflation. i) Calculate the expected Net Present Value (NPV). ii) Calculate the standard deviation of Net Present Value (NPV).
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
Related questions
Question
A project starts with an initial capital outflow of RM450,000 in exchange for the following likely cash flows:
| State of Economy |
Probability | End of Year 1 (RM) | End of Year 2 (RM) |
| Recession | 18% | 150,000 | 250,000 |
| Normal | 60% | 350,000 | 450,000 |
| Boom | 22% | 550,000 | 100,000 |
Assume that the economy will be in the same condition in the second year as it was in the first. The discounted
i) Calculate the expected
ii) Calculate the standard deviation of Net Present Value (NPV).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education