Cedeno, Koerner, Melo, Vining- 6

5. 12.07 56 eBook Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic ScenarioProbability of Outcome NPV Recession 0.05 0.20 0.50 12 million 0.20 18 million 0.05 28 million Calculate the project's expected NPV, standard deviation, and coefficient of variation Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places. Below average Average Above average Boom E(NPV): ONPV: CV: million million ($32 million) (12 million)

quiz is acceptung Question 1 (10 points) The Internal Rate of Return is a financial measure that allows us to estimate: a The nominal value of the returns on a project. b The profitability of a potential investment in a project. The variance of returns on a project. The median of the returns on a project. Next Page Once you click Next Page you will not be able to change you answer Support | Schoology Blog I PRIVACY POI JUN 30 MacBook Air

Activity 1 Standard deviation versus coefficient of variation as measures of risk. Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. Project Expected return Range Standard deviation 12.0% .040 .029 12.5 .050 .032 13.0 .060 .035 12.8 .045 .030 a. Which project is least risky, judging based on range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Bluecage's owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities. ABCD

Title 20.12 Suppose that there is a 1% probability that operational risk losses of a certain type exceed...   Description   20.12      Suppose that there is a 1% probability that operational risk losses of a certain type exceed $10 million. Use the power law to estimate the 99.97% worst-case operational risk loss when the α parameter equals (a) 0.25, (b) 0.5, (c) 0.9, and (d) 1.0.

Question 1: Salalalh Methanol company management is considering three competing investment Projects A, B & C Year Initial Investment 1 2 Project A Project B 12000 4150 Project C 12000 12000 5225 8250 1200 3100 3800 4600 Assume a discount Rate of 5.45 % 5260 7360 9460 9275 9300 4 Use the information above and help the management in choosing the most desirable Project using Payback period, Discounted payback Net Present value and Profitability Index. Out of the four methods which is considered to be the most desirable. Explain

answer #2 please inl Year 6 7 Currently, the investor's required rate of return 8 9 Please compute the project's NPV (hint: it is positive). 10 1 What if interest rates in the broad economy went up. 2 and also the firm became riskier? Investors would 323 1234 3 require a higher rate of return. 24 32 Cash Flows -5,881 1,551 1,635 1,722 2,029 25 1. Suppose the required rate increases 2%. 26 How much would the NPV drop? 27 A Between 200 and 270 28 B Between 270 and 280 29 C Between 280 and 290 30 D Between 290 and 300 31 33 34 35 2. Should the firm still accept the project? 36 A Yes 37 B No 6.0%

Clear Contacts is evaluating the following Independernt projects Project IRR Risk CD 15.0% High Average Low GH 13.0 RS 10.5 Clear's policy is to adjust its average required rate of returm, which equals 12 percent, when the risk associeted with a project is determined to be either higher-than- average or lower-than-average. The adjustment for higher-than-average risk projects is 4 percent and the ad ustment for lower-than-average nsk projects is 2 percent Which projectis) should Ciear purchase? O Projects CD and CH shouid be pchased, because they both have RRs greater than 12 percen. O Pojects GH and RS should be purchased O Only Preject Co should be purchased, becase has the highest RR O None of the perojects should be perchased. O Only Project RS should be purchased. Greater Good Glass (GGG) plans to issue a new bond with a coupon rate of interest equal to the yield to matunity (YTM) on its existing bond. The existing bond, which was issued five years ago, has a coupon rate of…

Question 1: Salalalh Methanol company management is considering three competing investment Projects A, B & C Year Initial Investment Project A Project B 12000 4150 5260 Project C 12000 12000 1200 3100 5225 3 4 Assume a discount Rate of 5.45 % 3800 4600 7360 9460 8250 9275 9300 Use the information above and help the management in choosing the most desirable Project using Payback period

Problem 13-1 (Algo) Risk-averse [LO13-2] Assume you are risk-averse and have the following three choices. Standard Deviation ABC Expected Value $ 2,790 2,860 2,200 A B с $ 1,670 1,520 630 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Coefficient of Variation b. Which project will you select? O Project A O Project B O Project C

Problem 1 Ziege Systems is considering the following independent projects for the next year. REQUIRED RATE OF INVESTMENT RETURN $4 million 14.0% $5 million 11.5 $3 million 9.5 9.0 12.5 12.5 7.0 11.5 PROJECT A B C D EFGH H $2 million $6 million $5 million $6 million $3 million RISK High High Low Average High Average Low Low The company estimates that its WACC is currently 10%. The company adjusts for risk by adding 2% for WACC for high-risk projects and subtracting 2 % from the WACC (discount rate) for low-risk projects. a. Which projects should Ziege accept if it faces no capital constraints ? b. If Ziege only has the ability to invest a total of $13 million, which projects should it accept?

3/11Peston No. 03 This is a subjective question, hen 9-87185 023/21/26-2021 Calculate the IRR for a project having the following cashflows: following 85-2023 Year 2 3 4 (RS) 20123n19 27,000 7,500 7,500 202 The e The exact value is not required, just the range in which the IRR lies. Do the calculations manually. Don't use Excel. 7,500 7,500 7,500 20212 Just the 202 hence you have to write your answer in the Text Field given below. Cashflow [3] 5 202123nt019-87185-

15 at 10:20pm nstructions Question 24 Cornell Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. WACC: 10.00% Year 1 Cash flows -$825 $450 $460 $470 O $282.46 O $317.37 O $323.72 O $266.59 O $393.54 1 Previous Next 20 O00 000 E1 DII F2 F3 F4 F5 F6 F7 F10 %23 $ % & 2 3 4 5 6 7 8 Q W R T A S D G I 3.

rome =16 MENT I You are considering investing in a project with the following possible outcomes: Probability of Investment Returns States Осcurrence Economic Boom 15% 16% Economic Growth 45% 12% Economic Decline 25% 5% Depression 15% -10% Calculate the standard deviation for this investment. Select one: O a. 6.46% O b. 8.21% O C. 10.07% O d. 11.17% O e. 11.63% bp 近

23 The Hanks Co is considering two projects. Project A consists of building a bee sanctuary on the firm's small parcel of land. Project B consists of building a retail store on on that same parcel. The parcel can accommodate only one of the projects. Which method of analysis is most appropriate for an analyst to employ? A. Accounting rate of return B. Profitability index C. NPV D. Payback E. IRR

es Problem 13-21 (Algo) Increasing risk over time [LO13-1] The Oklahoma Pipeline Company projects the following pattern of inflows from an investment. The inflows are spread over time to reflect delayed benefits. Each year is independent of the others Year 1 Cash Inflow Probability Cash Inflow 0.40 $.90 110 130 0.20 0.40 Year 1 Year 5 Year 10 5.80 110 140 Standard Deviation Year 5.1 Year 19 Probability Cash Inflow 0.35 $ 70 110 150 0.30 0.35 The expected value for all three years is $110. Compute the standard deviation for each of the three years. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Probability 0.30 0.40 0.30

8. Consider the quantitative version of the risk formula A. What quantity (dollar value) of risk is generated by a threat that will cause $5,000,000 in damage if it occurs, and has a 0.1% chance of occurring in any given year? B. Based on the quantitative risk calculated in part A, is it worth deploying a control that costs $50,000 per year (easily possible if it requires hiring a dedicated employee)? C. Consider the case that $5,000,000 in damages is likely to greatly exceed both the total revenue and the emergency cash reserve of a small business (which typically recommended to be in the ballpark of 6 months of operating expenses). How would you rate this threat for such a company, qualitatively? D. Based on the qualitative risk assessed in part C, is it worth deploying a control that costs $50,000 per year? Why or why not?

Exhibit 2.3A Examp'e Comparing Two Projects Using the Payback Method Project A Project B Formulas Investment Annual saving 5750,000 5215,000 $250.000 580,000 Project A Payback 07/D8) Project B Payback (7/P8) Payback Period" Rate of Return"* Project A: Rate of Return (06/D7) Project D. Rate of Return (F8/P7) Accept/Reject Exclanetion Project A Accept/Reject Accept is Payback<5 Years and Rate of Return 15% Project B * Note: Parbnck does not use she time valce of money ** Note: Rate of returnis reciprocalof Fayback

6 Risk and probability Micro-Pub, Inc., is considering the purchase of one of two microfilm cameras, R and S. Both should provide benefits over a 10-year period, and each requires an initial investment of $5,000. Management has constructed the following table of estimates of rates of return and probabilities for pessimistic, most likely, and optimistic results: a. Determine the range for the rate of return for each of the two cameras. b. Determine the value of the expected return for each camera. c. Which camera purchase is riskier? Why? a. The range for the rate of return for camera R is %. (Round to the nearest whole number.) Financial calculator Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment Annual rate of return Pessimistic Most likely Optimistic Camera R Amount $5,000 22% 28% 32% Camera S Probability Amount Probability 1.00 $5,000 1.00 0.26 0.54 0.20 19% 25% 30% 0.23 0.59 0.18 X

212F4b2fdONuXXgZX2DTmgiz56EF3A Subject Test Note: - You are attempting question 4 out of 12 The company is considering two projects. The initial investment in the Project A and B are $50,000 and $60,000 respectively. The Project A will generate annual cash flows of $26,000 for four years and the Project B will generate annual cash flows of $30,000 for four years. What must be the required rate of return, so that the company will be indifferent between these two projects? (A)The required rate of return must be 21.86%. (B) The required rate of return must be 37.42%. (C) The required rate of return must be 34.90%. (D)The required rate of return must be 31.39%. Answer O A OB OD

ch A project with an initial investment of $88000 and a profitability index of 1.239 also has an internal rate of return of 12%. The present value of net cash flows is O $71025. O $98560. O $88000. O $109032. Save for Later O Et V B 21 E 7 Attempts: 0 of 1 used Submit Answer F12

A firm has two potential investment projects. The project information is summarised in the table below. Project A $670 Project B $700 Expected value of profit Standard deviation of profit Coefficient of variation of profit 175 370 0.26 0.53 Which project has a lower absolute risk level? Which project has a lower relative risk level? Which project would you advise the firm to choose? Explain your answers. ---- --- ---- ..- ---

3 https://pwcollege.brightspace.com/d21/le/content/6894/viewContent/7549/View?ou=6894 T 01 2 Cost Pay Back and NPV A company is considering investing in a project to expand the facilities for customers. There are two different ways of doing this and they have each been costed. Projected net cash flow into the company has also been estimated. Project 2 £115,000.00 Year Expected Contributions 1 3 4 Automatic Zoom 5 Project 1 £120,000.00 6 £50,000.00 £40,000.00 £50,000.00 £45,000.00 £50,000.00 £50,000,00 £40,000.00 £40,000.00 £45,000.00 £30,000.00 a. If the company used the payback method, when does each project pay for itself? b. If the company were to employ a discount rate of 12%, what would be the NPV of each project? CIRR to > A view as TexT DOWI £50,000.00 £30,000.00

12 nts 3 03:38:35 eBook Hint Print eferences Your firm is contemplating the purchase of a new $580,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $92,000 at the end of that time. You will be able to reduce working capital by $117,000 (this is a one-time reduction). The tax rate is 24 percent and the required return on the project is 12 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Will you accept or reject the project? Reject Accept If the pretax cost savings are $115,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Question 15 Company 15 is considering undertaking a new project. The financial controller has computed Net Present Value (NPV) of the project at two different discount rates. The NPV at a discount rate of 12% is £4,700 positive and at a discount rate of 20%, it is £7,400 negative. You are required to compute the Internal Rate of Return (IRR) using linear interpolation or extrapolation. The Internal Rate of Return of this project is which of the following: A 23.1% B 16.9% C 15.1% D 8.9%