Activity 1Standard deviation versus coefficient of variation as measures of risk.Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of thealternatives promise to produce an acceptable return. The owners are extremely risk-averse;therefore, they will choose the least risky of the alternatives. Data on four possible projects follow.Project Expected return Range Standard deviation12.0%.040.02912.5.050.03213.0.060.03512.8.045.030a. Which project is least risky, judging based on range?b. Which project has the lowest standard deviation? Explain why standard deviation is not anappropriate measure of risk for purposes of this comparison.c. Calculate the coefficient of variation for each project. Which project will Bluecage's ownerschoose? Explain why this may be the best measure of risk for comparing this set of opportunities.ABCD

Standard deviation versus coefficient of variation as measures of risk. Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. Project Expected return Range Standard deviation A 12.0% .040 .029 B 12.5 .050 .032 13.0 .060 .035 D 12.8 .045 .030 a. Which project is least risky, judging based on range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Bluecage's owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities.

Standard deviation versus coefficient of variation as measures of risk. Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. Project Expected return Range Standard deviation A 12.0% .040 .029 B 12.5 .050 .032 13.0 .060 .035 D 12.8 .045 .030 a. Which project is least risky, judging based on range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Bluecage's owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities.

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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A company considering water flooding plan for one its small oil field, the chances of success is as flows: Present Probability value dollars of water flooding, 106 0.3 30 0.2 50 0.4 80 0.1 The cost would be 15 MM dollars. The company has already committed 30 MM to attractive ventures whose outcome is still to be decided, and there remains 10 MM dollars of venture capitol available. Should the company make the investment? Management will take a 10% risk? 0
(NPV with different required rates of return) Mooby's is considering building a new theme park. After future cash flows were estimated, but before the project could be evaluated, the economy picked up and with that surge in the economy interest rates rose. That rise in interest rates was reflected in the required rate of return Mooby's used to evaluate new projects. As a result, the required rate of return for the new theme park jumped from 9.5 percent to 11 percent. If the initial outlay for the park is expected to be $250 million and the project is expected to return free cash flows of $50 million in years 1 through 5 and $75 million in years 6 and 7, what is the project's NPV using the new required rate of return? How much did the project's NPV change as a result of the rise in interest rates? If the required rate of return is 9.5 percent, the project's NPV is $ million. (Round to two decimal places.)
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 996, and the expected rate of return on the market portfolio is 14%. a-1. Calculate the required return. Required return a-2. Should the project be accepted? Yes No b-1. Calculate the required return if its beta is 1.6. Required return b-2 Should the project be accepted? Yes No
Consider the following figure. If firm A were to use the average or composite WACC it would Rate of Return 13.0 (5) 11.0 10.0 90 Project L 70 70 Division L's WACC О Riskov Division H's WACC WACC Project H Composite WACC Firm A Risk Riskov O accept Project L and reject Project H O be making the right decisions on acceptance or rejection of both projects O accept both Project L and Project H O reject both Project L and Project H O accept Project H and reject Project L
Project A has expected return of K500,000 while project B has expected return of K100,000. The variances for A and B are K25, 000,000 and K1, 000,000 respectively. a) Compute the coefficient of variation for the two projects b) Which of the two projects is more risky? c) The risky cash flow for project D is K150,000 in perpetuity and the risk adjusted return is 15%. What are the certainty equivalent cash flows when the risk free rate is 10% d) Should project D be accepted if it costs K105,000?
Pronto Email service has a beta of 0.95 and a cost of equity of 11.9 percent. The risk-free rate of return is 2.8 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of 6 years. What discount rate should be assigned to this project? a. 13.33% b. 13.84% c. 12.67% d. 13.62%
How do I determine which is the correct answer for this problem? A company estimates that an average-risk project has a WACC of 10 percent, a below-average-risk project has a WACC of 8 percent, and an above-average-risk project has a WACC of 12 percent. Which of the following independent projects should the company accept? a. Project A has average risk and an IRR = 9 percent. b. Project B has below-average risk and an IRR = 8.5 percent. c. Project C has above-average risk and an IRR = 11 percent. d. All of the projects above should be accepted. e. None of the projects above should be accepted. Please answer fast I give you upvote.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Your Question : Please introduction and correct and incorrect option explain!
The Ulrich Corporation is trying to choose between the following two mutually exclusive design projects. If the required rate of return is 10%, which of the following statements is correct? (a) Select A2 because it has a higher PI.(b) Select A2 because it has a higher RO R. (c) Select Al because its incremental PI exceeds 1.(d) Not enough information to decide.
A certain project has MARR= 15% . Ali is the project manager and wants to select the best appropriate alternative among alternative A with i* = 12% , and alternative B with i*= 12% . Which is the best alternative to consider?
Determine the feasibility of below presented project using FW Method. Use MARR = 10% Note: Round off your answer to the NEAREST WHOLE NUMBER and show complete solution Answer the following: FW of Alt. A is $Blank 1 FW of Alt. B is $Blank 2 FW of Alt. C is $Blank 3 FW of Alt. D is $Blank 4 Select Alternative (Write only the letter if A,B,C or D) Blank 5

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