Reference no: EM131236867
Your company asked you to evaluate two potential projects. These projects are active for 10 years and have no salvage life. Both have the same upfront costs, but the revenue stream from each of the projects is subject to variation, so risk is involved. You are given the following information: Firm’s cost of capital: 10% Each project will require three years of investment before revenues are generated. The following cost distribution is given: Probability of Outcome Year 1 Investment Costs Year 2 Investment Costs Year 3 Investment Costs Expected Annual Revenues in Year 4 Expected Rate of Increase in Annual Revenues Project 1 Outcome A 20% $1,000 $2,000 $1,000 500 2% Outcome B 40% $1,000 $2,000 $1,000 650 3% Outcome C 40% $1,000 $2,000 $1,000 850 4% Project 2 Outcome A 10% $1,000 $2,000 $1,000 675 2% Outcome B 50% $1,000 $2,000 $1,000 700 2.40% Outcome C 40% $1,000 $2,000 $1,000 725 2.80% In a new worksheet in Excel, answer the following:
1. What is the expected value of the NPV for each of the projects?
2. What is the standard deviation of the NPV for each of the projects?
3. What is the coefficient of variation of the NPV for each of the projects?
4. Which project has a higher expected return? Which has more risk?
5. Which one would you recommend to your company? How does its attitude toward risk affect your answer?
|
Payment history category because of late payment
: A score of 898 is the best? (highest) score possible. Thirty-nine percent of the FICO score is based on payment history for credit? cards, car? loans, home? mortgages, and so on. Suppose your current FICO score is 740 and you have just missed a credi..
|
|
Using a present worth method
: An electric motor is rated at 10 horsepower (HP) and costs $800. Its full load efficiency is specified to be 85%. A 10 HP high-efficiency motor has an efficiency of 90%, and costs $1, 200. It is estimated that the motors will operate at a rated 10 HP..
|
|
Retrofit gasoline pumps at your filling station
: It costs $30,000 to retrofit gasoline pumps at your filling station so the pumps can dispense E85 (85% ethanol and 15% gasoline). If your station makes a profit of S0.08 per gallon from selling E85 and sells an average of 20,000 gallons of E85 per mo..
|
|
What are their strategies
: Nicole employs Joshua. She wants him to work hard rather than loaf. She considers offering him a bonus or not giving him one. All else same, Joshua prefers to loaf. If they choose actions simultaneously, what are their strategies?
|
|
What is the standard deviation of npv for each of projects
: Your company asked you to evaluate two potential projects. These projects are active for 10 years and have no salvage life. Both have the same upfront costs, but the revenue stream from each of the projects is subject to variation, so risk is involve..
|
|
Nash-bertrand equilibrium price and market quantity
: If firms produce identical products and have the same constant marginal cost, m. explain why the Nash-Bertrand equilibrium price and market quantity are the same regardless of whether there are two or more firms.
|
|
The mandated percentage of ethanol in gasoline is increased
: Consider the market for corn in the United States. Suppose that the mandated percentage of ethanol in gasoline is increased and at the same time a corn blight destroys a significant portion of the corn crop. Using a supply and demand diagram, show wh..
|
|
Increase the explanatory power of his demand equation
: An MBA student has proposed the following demand equation for good Y. QdY = a + b PY + c M where: QdY = quantity demanded of good Y in millions of tons per year PY = Price of good Y in dollars per ton M = Average consumer income in thousands of dolla..
|
|
Find the benefit maximizing level of output
: A firm faces the following inverse demand equation for the commodity it produces: P = 100 – Q where P represents the price/unit of the commodity it produces and Q represents the level of output produced. Find the benefit (profit) maximizing level of ..
|