Considering proposed project for its capital budget

Assignment Help Financial Management
Reference no: EM131523650

Shao Industries is considering a proposed project for its capital budget. The company estimates the project's NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. The company's CFO, however, forecasts there is only a 50% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis: Economic Scenario Probability of Outcome NPV Recession 0.05 -$30 million Below average 0.20 -24 million Average 0.50 12 million Above average 0.20 24 million Boom 0.05 38 million What is the project's expected NPV, its standard deviation, and its coefficient of variation? Enter your answers for the NPV and standard deviation in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. E(NPV) $ million σNPV $ million CVNPV.

Reference no: EM131523650

Previous Q& A

  What do you want to accomplish in your life or career

Thinking about fundamental objectives and means objectives is relatively easy when the decision context is narrow (buying a telescope, renting an apartment).

  Discuss the various ways that labor

Discuss the various ways that labor, as input into the production process, differs from other inputs like, say capital and land.

  Analyze various issues affecting the media business

Apply critical thinking skills to the analysis of issues involving mass media and society. Analyze various issues affecting the media business

  Construct an attribute scale for the patient quality of life

Occasionally a decision is sensitive to the way it is structured. The following problem shows that leaving out an important part of the problem can affect.

  Developing country of your choice

In this discussion you are going to consider the most significant obstacles to obtaining an education in a developing country of your choice

  What is percentage return individual earned on investment

What is the percentage return the fund can report that was achieved by its portfolio managers? What is percentage return the individual earned on the investment

  Were there important trade-offs to make

Create an influence diagram and a decision tree using PrecisionTree for the difficult decision problem that you described in Problem. What are your objectives?

  What is your portfolio return

First Data, and Whirlpool were 8.90 percent, -2.68 percent, and 11.03 percent. What’s your portfolio return?

  What stakeholder interests are in conflict

What stakeholder interests are in conflict? What ethical issues does Carter face? How should these costs be allocated?

  Recognizing special status or focus within the statements

Then fit the statements you have discovered into the chapter’s categories of “recognizing a special status or focus within the statements”;


Write a Review


Similar Q& A

  The purchase of bear stearns so controversial

Why did Treasury Secretary Paulson want Bear Stearns to sell for such a low price?- Why was the decision by the Fed to orchestrate the purchase of Bear Stearns so controversial?

  What discount rate should the firm use for the project

Gnomes R Us is considering a new project. The company has a debt-equity ratio of .72. The company’s cost of equity is 14.7 percent, and the aftertax cost of debt is 8 percent. The firm feels that the project is riskier than the company as a whole and..

  Credit default swap-market efficiency and regulation

“Despite its forbidding name, the CDS (Credit Default Swap) is a simple idea: it allows an investor to buy insurance against a company defaulting on its debt payments. Here you have some terms that come to my mind: hedging, speculation, naked positio..

  Execute stress testing under scenarios of likely adversity

Perform stress testing under scenarios of likely adversity and value your firm using appropriate valuation techniques on the pro forma financial data analysis you constructed earlier in the course.

  Company will change to constant dividend policy

BDU Company has set up a new product line in January 2015. The dividend is expected to grow at 8% per year for the next 15 years. Then at 3% thereafter. The required return is 12% and the dividend in the coming year is $3.00. What is the stock price?..

  Firm levered cost of capital if it adopts capital structure

An unlevered firm has a cost of capital of 11.3 percent and a tax rate of 34 percent. The firm is considering a new capital structure with 60 percent debt. The interest rate on the debt would be 7.25 percent. What would be the firm's levered cost of ..

  Calculate the capm and required rate of return

Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 4.1% rate of inflation in the future.

  Initial fixed asset investment-zero salvage value-fixed cost

Consider a three-year project with the following information: initial fixed asset investment = $875,000; straight-line depreciation to zero over the five-year life; zero salvage value; price = $34.25; variable costs = $22.65; fixed costs = $211,000; ..

  Mary retired from her job

Mary retired from her job on january 1 and will recieve monthly pension benefits of $2000 per month. how much must mary include in her gross income in year 1?

  Speculator seeking capital gain to purchase bonds

Under which circumstances is it best for a speculator seeking a capital gain to purchase bonds.

  What is the projected increase in retained earnings

The Cookie Shoppe expects sales of $2,900 next year. The profit margin is 4 percent and the firm has a 41 percent dividend payout ratio. What is the projected increase in retained earnings?

  Twenty-year zero coupon bond with a face value

Suppose that you invested in a twenty-year zero coupon bond with a face value

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd