Assume that we can estimate a project's cash flows as follows: Expected low ECA) Estimate of Slundard Deviation o --$300 $20 1 $120 $10 2 $150 $15 $150 $20 4 $110 $25 5 $100 $30 In this case, each annual flow can be represented by a random variable with known mean and variance. Further assume complete independence among the cash flows. (a) Find the expected NPW and the variance of this project at i = 10%. (b) If all cash flows are normally distributed with the given means and variances, what is the probability that the NPW will exceed $200?
Assume that we can estimate a project's cash flows as follows: Expected low ECA) Estimate of Slundard Deviation o --$300 $20 1 $120 $10 2 $150 $15 $150 $20 4 $110 $25 5 $100 $30 In this case, each annual flow can be represented by a random variable with known mean and variance. Further assume complete independence among the cash flows. (a) Find the expected NPW and the variance of this project at i = 10%. (b) If all cash flows are normally distributed with the given means and variances, what is the probability that the NPW will exceed $200?
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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Consider the given problem. If your risk-adjusted discount rate is 18%, is this project justifiable?
Transcribed Image Text:Assume that we can estimate a project's cash flows as follows:
Expected low ECA)
Estimate of Slundard Deviation o
--$300
$20
1
$120
$10
2
$150
$15
$150
$20
4
$110
$25
5
$100
$30
In this case, each annual flow can be represented by a random variable with
known mean and variance. Further assume complete independence among the
cash flows.
(a) Find the expected NPW and the variance of this project at i = 10%.
(b) If all cash flows are normally distributed with the given means and variances,
what is the probability that the NPW will exceed $200?
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