Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Project A Project B Standard deviation of project's expected NPVS $80,000 $120,000 Project beta 0.9 1.1 Correlation coefficient of project cash flows (relative to the firm's existing projects) 0.7 0.9 Which of the following statements about these projects' risk is correct? Check all that apply. O Project A has more corporate risk than Project B. O Project B has more corporate risk than Project A. O Project B has more market risk than Project A. O Project B has more stand-alone risk than Project A.

Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Project A Project B Standard deviation of project's expected NPVS $80,000 $120,000 Project beta 0.9 1.1 Correlation coefficient of project cash flows (relative to the firm's existing projects) 0.7 0.9 Which of the following statements about these projects' risk is correct? Check all that apply. O Project A has more corporate risk than Project B. O Project B has more corporate risk than Project A. O Project B has more market risk than Project A. O Project B has more stand-alone risk than Project A.

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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USE EXCEL TO SHOW FORMULAS Elizabeth Corporation is starting two new projects. Project A requires an investment of $5,000, has expected return of 16% with standard deviation 14%. Project B has initial investment of $15,000, expected return of 15% with standard deviation 10%. The correlation coefficient between the projects is 0.75. 1- Find the expected return, in dollars, of the portfolio of these two projects. 2- What is the probability that this return is less than $4,000?
The following are two projects a firm is considering: Project B Cash Flow Year 0 1 2 3 4 $2,939.01 Assuming that the relevant cost of capital for both projects is 11%, you should be able to determine the net present value (NPV) and the internal rate of return (IRR) for both project. Assume now that the firm has capital rationing, but knows that its true reinvestment rate is 20%, while its cost of capital is 11 percent. Given this information, determine the modified net present value (MNPV) for Project B. O $2.479.00 O $2.965.10 O$3.479.89 Project A Cash Flow O $4,084.05 ($10,000.00) ($11,000.00) $3,000.00 $5,000.00 $4,000.00 $4,000 00 $5,000.00 $4,000.00 $2,000.00 $2,000.00
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: 0 1 -$233,000 $65,600 MIRR 2 $83,800 % 4 $140,800 $121,800 Use the MIRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. 5 $81,000
The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Black Sheep Broadcasting Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $2,500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $325,000 Year 2 $500,000 Year 3 $475,000 Year 4 $425,000 Black Sheep Broadcasting Company’s weighted average cost of capital is 9%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$638,127 -$788,127 -$1,113,127 $1,386,873 Please solve using excel
solve these 2 pratice problems
The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $400,000 Year 3 $400,000 Year 4 $500,000 Happy Dog Soap Company’s weighted average cost of capital is 7%, and project Beta has the same risk as the firm’s average project. Based on the cash flows, what is project Beta’s NPV? -$1,662,284 -$1,362,284 -$1,262,284 -$1,994,741 Making the accept or reject decision Happy Dog Soap Company’s decision to accept or reject project Beta is independent of its decisions on other projects. If the firm follows the NPV method, it should project Beta. Suppose your boss…
The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $500,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $300,000 Year 2 $475,000 Year 3 $500,000 Year 4 $400,000 Hungry Whale Electronics’s weighted average cost of capital is 9%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $344,489 $844,489 $1,319,489 $971,162 Making the accept or reject decision Hungry Whale Electronics’s decision to accept or reject project Alpha is independent of its decisions on other projects. If the firm follows the NPV method, it should project Alpha.…
DEVCON INDUSTRIES LIMITED Income Statement For the years ended Dec. 31, 2018 and 2019 2018 2019 s000's so00's Sales 900000 1125000 Cost of Goods Sold 300000 306600 Gross Profit 600000 818400 Selling and Administrative Expenses 150000 156000 Depreciation Expense 54000 57000 Advertising Expenses 18000 21000 Earnings Before Interest and Taxes Interest Expense 378000 584400 3000 3000 Taxable Income 375000 581400 Taxation (35%) 131250 203490 Net Income 243750 377910 Dividends (40%) 97500 151164 Addition to Retained Earnings 146250 226746 Additional Information Share Price 21 27.3 Ordinary Shares Outstanding 120000000 144000000 DEVCON INDUSTRIES LIMITED Statement of Financial Position As at Dec. 31, 2018 and 2019 2019 s000's ASSETS 2018 LIABILITIES & EQUITY 2018 2019 Current Assets so00's Current Liabilities so00's s000's Inventories 264000 276000 Accounts Payables Notes Payables 138000 114000 Accounts Receivables 294000 330000 150900 132654 Cash and Equivalents 210900 270000 288900 246654…
Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $470,000 and has a present value of all its cash flows of $2,350,000. Project 2 requires an initial investment of $5,000,000 and has a present value of all its cash flows of $6,000,000. (a) Compute the profitability index for each project. (b) Based on the profitability index, which project should the company select? Complete this question by entering your answers in the tabs below. Required A Required B Compute the profitability index for each project. Profitability Index Numerator: Denominator: Profitability Index = Profitability index Project 1 Project 2
Use the information below to answer Question#40: GIVEN: The XYZ Company is considering the following project with its corresponding financial data. The Company requires a 9% return from its investments. $ 500,000 $ 200,000 $ 225,000 $ 245,000 Initial investment: Expected Cash in-flow Year 1: Expected Cash in-flow Year 2: Expected Cash in-flow Year 3: Present Value Factor of 1 at 9%: n=1: 0.91743 n=2: 0.84168 n=3: 0.77218 40) Choose from one of the following that accurately depicts this decision: A) This investment should not be considered because NPV is a negative $62,048 B) This învestment should be considered because NPV equals positive $62,048 C) This investment should be considered because the IRR for this investment is obviously less than its Required Rate of Return D) B and Care both correct
RiverRocks, Inc., is considering a project with the following projected free cash flows: Year 1 2 3 Cash Flow - $49.7 $10.2 $19.6 $19.6 $15.1 (in millions) The firm believes that, given the risk of this project, the WACC method is the appropriate approach to valuing the project. RiverRocks' WACC is 12.4%. Should it take on this project? Why or why not? The timeline for the project's cash flows is: (Select the best choice below.) O A. Cash Flows (millions) - $49.7 - $10.2 - $19.6 - $19.6 - $15.1 Year 1 2 3 4 O B. Cash Flows (millions) $49.7 $10.2 $19.6 $19.6 $15.1 Year 1 4 O C. Cash Flows (millions) - $49.7 $10.2 $19.6 $19.6 $15.1 Year 1 2 3 4 O D. Cash Flows (millions) $49.7 - $10.2 - $19.6 $19.6 - $15.1 Year 1 2 4 The net present value of the project is S million. (Round to three decimal places.) RiverRocks V take on this project because the NPV is (Select from the drop-down menus.)
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