am. 108. Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizesthat conditions could be better or worse, so she performed a scenario analysis and obtained these results:Economic ScenarioProbability of OutcomeNPVRecessionBelow averageAverageAbove averageBoom0.05($42 million)0.200.50(20 million)12 million20 million36 million0.200.05Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. Forexample, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places.E(NPV):ONPVCV:millionmillion

The objective of the question is to calculate the expected Net Present Value (NPV), standard…

Answered: Huang Industries is considering a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

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Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($64 million) Below average 0.20 (10 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 30 million Calculate the project's expected NPV, standa
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($34 million) Below average 0.20 (16 million) Average 0.50 12 million Above average 0.20 16 million Boom 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. E(NPV): million σNPV: million CV:
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Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome Recession Below average Average Above average E(NPV): ONPV: CV: X million 0.05 million 0.20 Boom 40 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. 0.50 0.20 NPV 0.05 ($38 million) (16 million) 12 million 20 million
Huang Industries is considering a proposed project whose estimatedNPV is $12 million. This estimate assumes that economic conditions will be “average.”However, the CFO realizes that conditions could be better or worse, so she performed ascenario analysis and obtained these results: Calculate the project’s expected NPV, standard deviation, and coefficient of variation.
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This est However, the CFO realizes that conditions could be better or worse, so she performed a scenaric Economic ScenarioProbability of Outcome NPV Recession 0.05 ($86 million) Below average 0.20 (14 million) Average 0.50 12 million Above average 0.20 24 million Вoom 0.05 40 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not re decimal places. E(NPV): million ONPV: million
Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome Recession ($40 million) (24 million) 12 million 18 million Boom 0.05 34 million Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. Below average Average Above average E(NPV): ONPV: CV: million million 0.05 0.20 0.50 NPV 0.20
A company is considering a project that has the following cash flows: C0 = -5,000, C1 = +900, C2 = +2,500, C3 = +1,100, and C4 = +2,900 with a risk-adjusted discount rate of 12%. Calculate the Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index, and the Payback of this project. If you were the manager of the firm, will you accept or reject the project based on the calculation results above?
A firm has two potential investment projects. The project information is summarised in the table below. Project A $670 Project B $700 Expected value of profit Standard deviation of profit Coefficient of variation of profit 175 370 0.26 0.53 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers. ---- --- ---- ..- ---
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.
6. Within-firm risk and beta risk Understanding risks that affect projects and the impact of risk consideration Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown if these divisions will be profitable. The company knew that opening these new divisions would be risky, but its management believes the divisions have the potential to be extremely profitable under favorable market conditions. The company is currently using its WACC to evaluate new projects for all divisions. If Yatta Net International does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. The firm will accept too many relatively…
Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $3 million investment today and have expected NPVs of $600,000. 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 $240,000 $360,000 Project beta 0.9 0.7 Correlation coefficient of project cash flows (relative to the firm’s existing projects) 0.6 0.8 Which of the following statements about these projects’ risk is correct? Check all that apply. Project B has more market risk than Project A. Project A has more market risk than Project B. Project A has more stand-alone risk than Project B. Project B has more stand-alone risk than Project A.

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