An investor is looking at two projects, project A and B. Project A pays$44,000 with prob. 0.7 and $14,000 with prob. 0.3, while project B pays$32,000 with prob. 0.5 and $X with prob. 0.5. If the two projects have thesame expected value, what is X?O $35,000O $36,000O $37,000O $38,000

The objective of the question is to find the value of X, which is the payout of project B with a…

Answered: An investor is looking at two projects,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Raymond has two one-year projects for potential investment and each project has a cost of $10 million. After one year, the two projects will provide the following payoffs: Project A Successful (60% probability): $12 million Not successful (40% probability): $9 million Project B Successful (40% probability): $15 million Not successful (60% probability): $8 million (i) What is the expected payoff and risk (standard deviation of payoff) of these two projects? (ii) Based on your answers in part (i), explain which is the good project and which is the bad project. Raymond is seeking a $10 million loan from his friend Betty for investing in either one of the above projects with the following loan features: (1) If the project is successful, Raymond will receive the payoff from the project, and he will also pay Betty $10 million plus interest. (2) If the project is not successful,…
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You are considering investing in a project that has an initial cost of $18,000, a WACC of 15%, with the estimated net cashflows for years 1, 2, 3 being equal to $20,000, $ 10,000, $6,000. Would you accept this project? _____________, Why?
You are asked to evaluate two projects X and Y. The cash flow for each is listed below. The firmAc€?cs cost of capital is 12%. Year X Y 0 (10,000) (10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Calculate the NPV of each project? [rounded to the nearest tens] Which project would you select? c) Compute the IRR for project X. [up to two decimal places] Based on the IRR criterion, should project X be accepted? Compute the IRR for project Y. [up to two decimal places] Based on the IRR criterion, should project Y be accepted?
28.
A firm evaluates all of its projects by applying the IRR rule. If the required return is 18 percent, will the firm accept the following project?CF0 = -$30,000CO1 = $20,000C02 = $14,000C03 = $11,000 yes or no
Darin Clay, the CFO of MakeMoney.com, has to decide between the following two projects: Project Million 0 -$2,700 10+ 310 2 1,110 3 1,950 Year Project Billion -$10 lo+ 1,150 1,950 3,100 The expected rate of return for either of the two projects is 12 percent. What is the range of initial investment (lo) for which Project Billion is more financially attractive than Project Million? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Initial investment less than $ 5,530.00
K You have been offered a unique investment opportunity. If you invest $11,300 today, you will receive $565 one year from now, $1,695 two years from now, and $11,300 ten years from now. a. What is the NPV of the opportunity if the cost of capital is 5.7% per year? Should you take the opportunity? b. What is the NPV of the opportunity if the cost of capital is 1.7% per year? Should you take it now? a. What is the NPV of the opportunity if the cost of capital is 5,7% per year? If the cost of capital is 5.7% per year, the NPV is $. (Round to the nearest cent.)
Consider the following projects, X and Y where the firm can only choose one. Project X costs $1500 and has cash flows of $678, $652, $347, $111, $54, $16 in each of the next 6 years. Project Y also costs $1500, and generates cash flows of $738, $693, $405 for the next 3 years, respectively. WACC=11%.Plot NPV profiles for the two projects. Identify the projects’ IRRs on the graph.
You are considering the following two mutually exclusive projects. The crossover rate between these two projects is ___ percent and Project ___ should be accepted if the required return is greater than the crossover rate. Year Project A Project B 0 −$ 31,000 −$ 31,000 1 12,000 20,140 2 12,000 10,000 3 20,000 12,160
You are considering investing in a project that has an initial cost of $10,000, a WACC of 10%, with the estimated net cashflows for years 1, 2, 3 being equal to $4000, $ 9,000, $21,000. What is the project’s NPV?
consider the following two investments with the cashfow as shown. given the project are mutually exclusive, use Incremental-Investement Analysis to determine which of the two projects you should select. Given that the MARR required by management is 12%.

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An investor is looking at two projects, project A and B. Project A pays $44,000 with prob. 0.7 and $14,000 with prob. 0.3, while project B pays $32,000 with prob. 0.5 and $X with prob. 0.5. If the two projects have the same expected value, what is X? O $35,000 O $36,000 O $37,000 O $38,000