What contribution will the project make to your firms value

Assignment Help Financial Management

Reference no: EM13928135

1. The 3Z Company has estimated that a major project has an expected internal rate of return (IRR) of 18 percent. The most optimistic estimate of the project's IRR is 24 percent, and the most pessimistic estimate is 12 percent. The company expects that its most optimistic estimate of the project's achieved IRR will not be exceeded more than 10 percent of the time. Similarly, 3Z managers do not expect an achieved IRR that is below 12 percent more than 10 percent of the time. The weighted cost of capital is 14 percent. What is the probability that this project will generate returns less than 3Z's weighted cost of capital?

2. An investment your firm is considering will cost you $5 million today. You expect to receive $7 million one year from now from the sale of the investment. You also expect to receive $500,000 in income from the investment at the end of one year. The expected sales price of $7 million is normally distributed with a standard deviation of $1 million. If you require a 10 percent rate of return on risk-free projects and a 15 percent rate of return on projects such as this, what contribution will this project make to your firm's value, after considering the riskiness of the projected returns?

3. You have estimated the expected NPV from a project to be $3 million with a standard deviation of $4 million. The distribution of the possible NPVs is approximately normal. If you are willing to accept a 25 percent chance of incurring a negative NPV on the project, should it be undertaken?

Reference no: EM13928135

Questions Cloud

Discuss the current and potential economic drivers and risks : Macroeconomic drivers and risks-What internal risks does your company face? (Examples include, but are not limited to: personnel or managerial issues, supply or distribution constraints, production constraints, creating/sustaining competitive adva..

Describe methods the np will use to identify verbal : Describe methods the NP will use to identify and prevent verbal, physical and psychological harm to patients and staff

What are the main aspects of accounting standard : Calculate the net cash flow from financing activities based and discuss in brief the treatment of following items in Cash Flow Statement - Calculate the net cash flow from financing activities

Considering a leasing arrangement : To finance some manufacturing tools it needs for the next 4 years, Waldrop Corporation is considering a leasing arrangement. Under either the lease or the purchase, Waldrop Corporation must pay for insurance, property taxes, and maintenance. What is ..

What contribution will the project make to your firms value : what contribution will this project make to your firm's value, after considering the riskiness of the projected returns?

What would be the companys debt ratio : Sadik Industries must install $300 of new machinery in its Texas plant. It can either lease the equipment or obtain a bank loan for 100% of the required amount and buy the equipment. What would be the company's debt ratio, in percentages, if it purch..

Randomly select one candy from each bowl : We will randomly select one candy from each bowl. The outcome of interest is the flavour of each of the two candies. Write out the complete sample space of outcomes.

Prepare on pioneer company books journal entries : Prepare on Pioneer Company's books journal entries to record the investment related activities for 2014. Prepare the workpaper eliminating entries for a workpaper on December 31, 2014.

What is the cost of owning : Waldrop Corporation must install $200 of new equipment in its Ohio plant. It can obtain a bank loan for 100% of the required amount at 9% interest on the loan. Alternatively, the firm can leas the equipment on a 2-year lease, the payment would be $11..

User Account

All Pages