Environment: Recession Stable Boom Environment 30% 50% 20% Probabilities Returns: Project 1 Project 2 12% 16% 26% 24% 4% 20% 10% Gilts (Risk Free) 4% 4% Makememoney Plc existing portfolio of investments is identical to those of Project 1 above. Any additional investments Makememoney Plc undertakes will comprise of only 40% in total of the new portfolio. Carry out relevant calculations to determine which of the three investments above (1, 2 & Gilts) should be added to Makememoney Plc's existing portfolio.

Environment: Recession Stable Boom Environment 30% 50% 20% Probabilities Returns: Project 1 Project 2 12% 16% 26% 24% 4% 20% 10% Gilts (Risk Free) 4% 4% Makememoney Plc existing portfolio of investments is identical to those of Project 1 above. Any additional investments Makememoney Plc undertakes will comprise of only 40% in total of the new portfolio. Carry out relevant calculations to determine which of the three investments above (1, 2 & Gilts) should be added to Makememoney Plc's existing portfolio.

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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ine capital asset pricing model to find the rcquired retim on this investment Q3: Company currently has total assets of $4 million, of which current assets comprise $0.5 million. Sales are $9 million annually, and the before-tax net profit margin (the firm currently has no interest-bearing debt) is 13 percent. Current assets levels of $0.5 million and $0.7 million are being considered instead of the $0.5 million presently held. Any additions to current assets would be financed with new equity capital. a. Determine the total asset turnover, before-tax return on investment, and before-tax net profit margin under the three alternative levels of current assets. b. If the new additions to current assets were financed with long-term debt at 14 percent interest, what would be the before-tax interest "cost" of the two new policies?
Question Sun Plc has been specially formed to undertake two investment opportunities. The risk and return characteristics of the two projects are shown below: X Y Expected Return 10% 20% Risk (standard deviation) 4% 7% Sun plans to invest 60% of its available funds in Project X and 40% in Project Y. The directors believe that the correlation coefficient between the returns of the projects is +0.18. Required: i. Calculate the expected return from the proposed portfolio of Projects X and Y. ii. Calculate the risk of the portfolio and comment upon your result in the context of the risk reduction effect of diversification. iii. How could Sun Plc invest its funds in order to obtain a minimum-risk portfolio? -----
13. The IBC Company is considering undertaking an investment that promises to have the following cash flows Period 0 is = -$100 Period 1 is= $150 Period 2 is = $50 Period 3 is = $50 If it waits a year, it can invest in an alternative (that is, mutually exclusive) investment that promises to pay Period 1 Period 2 Period 3 −$150 $250 $50 Assume a time value of money of 0.05. Which investment should the firm undertake? Use the present value method and the internal rate of return approaches. With the IRR approach, use the incremental cash flows.
COURSE: FINANCE LEVEL 2 Kappa Company is fully equity financed and has a cost of capital (WACC) = 11% per annum and is evaluating following projects: Project Name Beta Expected Return (%) W 0.27 22% X 0.35 10,2% Y 1.3 12,7% Z 2.7 24% Rate of return on Central Bank Bond is 9% per annum and expected market return is 14% per annum. a) Which projects have an expected return higher than cost of capital (WACC) Kappa of 11%? b) Which projects should be accepted? c) Which projects would be incorrectly accepted or rejected if company's total cost of capital were used as minimum acceptable rate of return?
The portfolio of 50% Project A and 50% project B offers and offers a way of earning a more stable return than either a total investment in project A or project B. time 1 9 True False 10 Returns on Project A 2 3 57.00% 4 19.00% 5 70.00% 6 25.00% 7 39.00% 8 42.00% -23.00 % -32.00 % 39.00% 122.00 % Returns on Project B -23.40% -73.20% -34.20% -11.40% -42.00% -15.00% -23.40% -25.20% 13.80% 19.20%
I need help finding the Profitability index for each project (D) using Excel
Estimate a Venture's Constant Growth Rate (g) based on the following information: Terminal Value = $400,000; current year's Net Income = $20,000; next year's %3D Expected Cash Flow = $25,000; and a Required Rate of %3D Return of 20%. A. 2% В. 4% С. 6% D. 8% E. 10% O B O A OD O E
Project A has the following estimated cash flows and present values:Year Cash flow $ Discount factor@ 12% Present value $0 Cost (95 000) 1.0 (95 000) 1–5 Contributionper annum 50 000 3.605 180 250 1–5 Fixed costsper annum (25 000) 3.605 (90 125) 5 Residual value 20 000 0.567 11 340 The benefit of using sensitivity analysis in an investment appraisal would be:
ok ht ences A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year 0 1 2 3 Cash Flow IRR -$27,400 11,400 14,400 10,400 If the required return is 16 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Should the firm accept the project? Yes O No
You are considering investing in a project with the following possible outcomes: Probability of Investment States Occurrence Returns State 1: Economic boom 18% 20% State 2: Economic growth 42% 16% State 3: Economic decline 30% 3% State 4: Depression 10% -25% Calculate the expected rate of return and standard deviation of returns for this investment, respectively. O 7.35%, 12.99% O2.18%, 1.69% O 8.72%, 12.99% O3.50%, 1.69%
4
Telluride Tours is currently evaluating two mutually exclusive investments. After doing a scenario analysis and applying probabilities to each scenario, it has determined that the investments have the following distributions around the expected NPVS. Probability NPVA NPVB 10% -$39,780 -$14,918 20% -9,945 2,486 40% 19,890 19,890 20% 49,725 37,294 10% 79,560 54,698 Several members of the management team have suggested that Project A should be selected because it has a higher potential NPV. Other members have suggested that Project B appears to be more conservative and should be selected. They have asked you to resolve this question. Calculate the expected NPV for both projects. Can the question be resolved with this information alone? а. b. Calculate the variance and standard deviation of the NPVS for both projects. Which project appears to be riskier?

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