Risk analysis Green Energy is considering expanding its investment in renewable energy generation. Two possible types, wind and solar, of energy generation are under review. After investigating the possible outcomes, the company made the estimates shown in the following table: wind farm solar farm initial investment 120 million 120 million annual rate of return pessimistic 4% -6% most likely 20% 20% optimistic 36% 46% The pessimistic and optimistic outcomes occur with a probablity of 25%, and the most likely outcome occurs with a probability of 50%. a. Determine the range of the rates of return for each of the two projects. b. Which project is less risky? c. If you were making the investment decision, which one would you choose? What does this imply about your feelings toward risk? d. Assume that solar farm's most likely outcome is 21% per year and that all other facts remain the same. Does this change your answer to part c? please show step by step
Risk analysis Green Energy is considering expanding its investment in renewable energy generation. Two possible types, wind and solar, of energy generation are under review. After investigating the possible outcomes, the company made the estimates shown in the following table:
wind farm solar farm
initial investment 120 million 120 million
annual rate of return
pessimistic 4% -6%
most likely 20% 20%
optimistic 36% 46%
The pessimistic and optimistic outcomes occur with a probablity of 25%, and the most likely outcome occurs with a probability of 50%.
a. Determine the range of the
b. Which project is less risky?
c. If you were making the investment decision, which one would you choose? What does this imply about your feelings toward risk?
d. Assume that solar farm's most likely outcome is 21% per year and that all other facts remain the same. Does this change your answer to part c?
please show step by step
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
