10. A project is predicted to make an NPV of £24m in a boom, £16m in a medium growth economy and lose £16m in a recession. There is a 25% chance of a recession, a 25% chance of a boom and a 50% chance of a medium growth economy. What is the expected NPV (ENPV)? A) £10m B) £24m C) £50m D) £80m

10. A project is predicted to make an NPV of £24m in a boom, £16m in a medium growth economy and lose £16m in a recession. There is a 25% chance of a recession, a 25% chance of a boom and a 50% chance of a medium growth economy. What is the expected NPV (ENPV)? A) £10m B) £24m C) £50m D) £80m

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

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Similar questions

A firm has to choose between two possible projects, the outcome of which depend on whether the economy is in recession or boom: Probability Project A NPV (£m) Project B NPV (£m) Recession 0.6 -100 -50 Boom 0.4 +250 +200 Using ENPV which project should be chosen?
4) A project is predicted to have a return of -£16m in a recession, and the probability of a recession is estimated to be 0.25. In a growth period the return would be 16m (with probability 0.50) and in a boom the return would be £24m (with probability 0.25). What is the expected return? A) £24m B) £50m C) £10m D) £80m
10. A firm is considering an investment opportunity. At a discount rate of 10%, the project has a positive net present value (NPV) of £3,548 and at a discount rate of 15%, it has a negative NPV of £7,989. The firm’s cost of capital is 8%. What is the internal rate of return (IRR) of the project? a. 13.5% b. 11.5% c. 8.0% d. 12.5%
Consider cash flows Year 0: -6900 Y1: 1700 Y2: 2900 Y3: 2900 Y4: 3500 What is the profitability index for this project if the return is 10%
If you invest £100 now and expect to receive £133.1 in 2 years time, what is the Internal Rate of Return of this project? a015% b)10% c)0% d)33%
What is the net present value of an investment that requires a 10 percent minimum rate of return and has the following projected cash flows: Yr0 = -100, Yr1 = 25, Yr2 = 35, Yr3 = 45, Yr4 = 35, and Yr5 = 30? a. 41 b. 28 c. 34 d. 35
2. Suppose there are two possible states for the economy over the next year, boom or bust, and these two states are equally likely to occur. An asset you may invest in has a payoff forecast of b160 million in the boom state and £64 million in the bust state. The risk-free rate is 20% and a risk premium of 20% is required for assets with similar risk features. What is the maximum price you would agree to pay for this asset today?
Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Cash Flow Today (millions) -$10 $5 $20 Cash Flow in One Year Project (millions) $20 $5 -$10 Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? b. If the firm can choose only one of these projects, which should it choose based on the NPV decision rule? c. If the firm can choose any two of these projects, which should it choose based on the NPV decision rule? ABC
4. Calculating Discounted Payback (LO3) An investment project has annual cash inflows of $4,200, $5.300, $6.100, and $7,400, and a discount rate of 14%. What is the discounted payback period for these cash flows if the initial cost is $7.000? What if the initial cost is $10,000? What if it is $13,000?
A project requires an immediate cash outflow of £300 million in return for the following probable cash flows: State of Economy Probability of State of Economy Year 1 £ in million Year 2 £ in million Recession 0.2 800 130 Growth 0.5 300 350 Boom 0.3 900 440 Assume that the state of economy will be the same in the second year as in the first. The required rate of return is 7%. There is no tax or inflation. Required: a- Calculate the expected NPV b- Calculate the standard deviation of NPV
6. Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. nts Time: 1 2 3 4 5 Cash flow $66,800 $85, 000 $142,000 $123,000 $82,200 $245,000 Print Use the discounted payback decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) eferences Discounted payback years Should it be accepted or rejected? O Rejected О Ассеpted
Aliska plc is investing £990,000 in a project. If it is a success then the return will be £230,000. However, if a particular risk occurs the return will reduce to £10,000. The probability of this risk occurring is 02 What is the project's expected return on the investment for risk evaluation purposes? A. 4.85% B. 5.45% C. 18.79% D. 19.39%