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Describe your answer for each question in complete sentences, whenever it is necessary. Show all of your calculations and processes for the following points:
1. Describe and calculate Project A's expected net present value (ENPV) and standard deviation (SD), assuming the discount rate (or risk-free interest rate) to be 8%. What is the decision rule in terms of ENPV? What will be San Diego LLC's decision regarding this project? Describe your answer.
2. The company is also considering another three-year project, Project B, which has an ENPV of $32 million and standard deviation of $10.5 million. Project A and B are mutually exclusive. Which of the two projects would you prefer if you do not consider the risk factor? Explain.
3. Describe the coefficient of variation (CV) and the standard deviation (SD) in connection with risk attitudes and decision making. If you now also consider your risk-aversion attitude, as the CEO of the San Diego LLC will you make a different decision between Project A and Project B? Why or why not?
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
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Jamie Wong is planning building an investment portfolio containing two stocks, L and M. Stock L will represent 40 percent of the dollar value of the portfolio
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A low-carbon-steel machine part, operating in a corrosive atmosphere, lasts 6 years, and costs $350 installed. If the part is treated for corrosion resistance it will cost $500 installed.
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