Project A has a net present value of zero when the discount factor of 20% is used. How much return is the project earning? If project A above is earning K150, 000 per year in perpetuity, what is the initial investment cost of the project? Company A expects to generate K150, 000 cash flows per year in perpetuity and the risk adjusted discount rate is 20%. What should be the certainty equivalent cash flows when the risk free rate is 10%

Project A has a net present value of zero when the discount factor of 20% is used. How much return is the project earning? If project A above is earning K150, 000 per year in perpetuity, what is the initial investment cost of the project? Company A expects to generate K150, 000 cash flows per year in perpetuity and the risk adjusted discount rate is 20%. What should be the certainty equivalent cash flows when the risk free rate is 10%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Assume that we can estimate a project's cash flows as follows: n 0 1 2 3 4 5 Expected Flow E(An) Estimate of Standard Deviation on $0 $10 $15 $20 $25 $30 -$300 $120 $150 $150 $110 $100 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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Are the investment decisions based solely on an estimate of a project's profitability?
Batelco Inc. is considering two mutually exclusive projects A and B. Each project requires an initial investment as presented in the below table. The economic life of the project A will be 6-Year's and Project B will be 5 years, and both projects carry same risk, Batelco Inc uses a discount rate of 12%. After considering the current economic situation Batelco Inc. has set a maximum payback period of 4 years and minimum return on investment (ROI) 18%. A financial analyst, prepared estimates of the annual revenues and costs associated with each project as in the below table: Cost of equipment Working Capital needed Overhaul of the equipment in two years Annual revenues and costs: Sales revenues Variable expenses Depreciation expense Fixed out-of-pocket operating costs Life of Project Projects A 240.000 60,000 12000 375,000 180.000 60.000 90,000 6 year Projects B 470.000 80,000 14000 300,000 90,000 74,000 70,000 5 years The working capital will be released 6th and 5th year of the project…
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