Differentiate-company risk versus project risk

Assignment Help Risk Management
Reference no: EM131732728

Question: Company Risk versus Project Risk. Both Dow Chemical Company, a large natural gas user, and Superior Oil, a major natural gas producer, are thinking of investing in natural gas wells near Houston. Both are all-equity-financed companies. Dow and Superior are looking at identical projects. They've analyzed their respective investments, which would involve a negative cash flow now and positive expected cash flows in the future. These cash flows would be the same for both firms. No debt would be used to finance the projects. Both companies estimate that their project would have a net present value of $1 million at an 18 percent discount rate and a -$1.1 million NPV at a 22 percent discount rate. Dow has a beta of 1.25, whereas Superior has a beta of .75. The expected risk premium on the market is 8 percent, and riskfree bonds are yielding 12 percent. Should either company proceed? Should both? Explain.

Reference no: EM131732728

Questions Cloud

Identify potential barriers to implementing community health : Identify potential barriers to implementing community health plans in your community and brainstorm ways of addressing these barriers.
Briefly describe the municipalitys demographics : Briefly describe the municipality's demographics. Evaluate the previous three-year trend of the municipality's major revenue sources and expenditures.
Javascript form validation-using javascript code : Validate that the user age field is between 18 and 100. If valid, set the background of the field to LightGreen and assign true to userNameValid.
Determine the firm cost of debt and cost of equity capital : Cost of Capital. Suppose Tom O'Bedlam, president of Bedlam Products, Inc., has hired you to determine the firm's cost of debt and cost of equity capital.
Differentiate-company risk versus project risk : Company Risk versus Project Risk. Both Dow Chemical Company, a large natural gas user, and Superior Oil, a major natural gas producer, are thinking.
How are virtues from values acquired : How do they affect one's character? How are virtues from values acquired? How can they be helpful in resolving health care ethical dilemmas?
Describe the techniques for division cost of capital : Divisional Cost of Capital. Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions?
Discuss the information gathering and ethics in marketing : Discuss the Information Gathering and Ethics in Marketing. Summarize and post your responses to this Discussion Area.
Discuss about the company growth rate : Calculating Cost of Equity. The Giuntoli Co. just issued a dividend of $2.55 per share on its common stock. The company is expected to maintain a constant.

Reviews

Write a Review

Risk Management Questions & Answers

  A project report on mutual funds

This project report speaks of the core and future aspects of Mutual Funds and the present challenges to cope with.

  Evalaute the theoretical option price

Evalaute the theoretical option price

  Risk and return

Investing in the stock market and Risk-free investment and inflation

  Evaluate the gross profit

Evaluate the gross profit

  Discuss concepts of risk and management

Risk lies at all levels of business activity. There are many different kinds of risks within an management as well as ways to manage risks.

  Determine the average risk premium

Here are stock market & Treasury bill percentage (%) returns between 2006 and 2010: Determine the average risk premium

  Hypothetical healthcare organization ratios

Discuss and explain why one should apply caution when using financial ratios for analyzing a healthcare management's current financial position and future viability.

  Discuss role of risk assessment

The financial information has been dominated currently by stories of financial institutions that have mis-measured risk as part of subprime mortgage crisis.

  Calculate maturity risk premium

The real risk-free rate is 3 percent, & inflation is expected to be 3 percent for the next two years. A 2-year Treasury security yields 6.3 percent.

  Selcting best option for portfolio

Suppose you are planning investing in two stocks to form a portfolio. Assume you do not like risk. Which one of given stock combinations will you select for your portfolio?

  Result of systematic or unsystematic risk

It has been a little over one year since the collapse of Lehman Brothers which was the first major event in the downturn of our stock market & economy.

  Determine risk management

Determine risk management? Discuss the importance of risk management in an organization? How does risk management mitigation create value for an organization?

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