Expected Rate of Return (%) Capital Invested (Millions $) Project Risk Estimate 1 12.6 6.8 6.4 2 14.8 6.2 45.8 3 9.2 4.2 9.2 4 6.1 6.2 17.2 5 21.4 8.2 34.2 6. 7.5 3.2 14.8
The Ajax Company uses a portfolio approach to manage their research and development
(R&D) projects. Ajax wants to keep a mix of projects to balance the expected return and
risk profiles of their R&D activities. Consider the situation where Ajax has six R&D projects
as characterized in the table. Each project is given an expected
assessment, which is a value between 1 and 10 where 1 is the least risky and 10 is the most
risky. Ajax would like to visualize their current R&D projects to keep track of the overall
risk and return of their R&D portfolio.
a. Create a bubble chart where the expected rate of return is along the horizontal axis, the
risk estimate is on the vertical axis, and the size of the bubbles represents the amount
of capital invested. Format this chart for best presentation by adding axes labels and
labeling each bubble with the project number.
b. The efficient frontier of R&D projects represents the set of projects that have the highest
expected rate of return for a given level of risk. In other words, any project that has
a smaller expected rate of return for an equivalent, or higher, risk estimate cannot be
on the efficient frontier. From the bubble chart in part a., what projects appear to be
located on the efficient frontier?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
