Q2.a) MAP Ltd. is a Pakistan based firm that is considering the location of new investmentprojects. They have to invest 35 percent of their funds in Pakistan. For the remaining 65%funds they are considering two different locations i.e. Middle East and Africa. Thecharacteristics of the proposed projects are as follows. Compute portfolio risk and return:35%For30% funds35% fundsInvestment inif investedif investedPakistanin M Eastin AfricaProject'sexpectedafter-tax returnmean14%16%16%annualStandard deviation of0.070.110.12project's returnCorrelationof0.210.08project's returns ofPakistan'sinvestmentwithreturn on the otheroptionsPage 2 of 4***correlation of 30% Middle East investment's return with returns from 35% Africa'sinvestment-0.17a) Discuss factors to be considered a MNC while investing in foreign countries.

The question is based on the concept of return and risk calculation of portfolio with three…

a) MAP Ltd. is a Pakistan based firm that is considering the location of new investment projects. They have to invest 35 percent of their funds in Pakistan. For the remaining 65% funds they are considering two different locations i.e. Middle East and Africa. The characteristics of the proposed projects are as follows. Compute portfolio risk and return: 35% For 30% funds 35% funds Investment in Pakistan if invested if invested in M East in Africa Project's expected after-tax return mean 14% 16% 16% annual Standard deviation of 0.07 0.11 0.12 project's return Correlation of 0.21 0.08 project's returns of Pakistan's investment with return on the other options Page 2 of 4 ***correlation of 30% Middle East investment's return with returns from 35% Africa's investment=0.17 a) Discuss factors to be considered a MNC while investing in foreign countries.

a) MAP Ltd. is a Pakistan based firm that is considering the location of new investment projects. They have to invest 35 percent of their funds in Pakistan. For the remaining 65% funds they are considering two different locations i.e. Middle East and Africa. The characteristics of the proposed projects are as follows. Compute portfolio risk and return: 35% For 30% funds 35% funds Investment in Pakistan if invested if invested in M East in Africa Project's expected after-tax return mean 14% 16% 16% annual Standard deviation of 0.07 0.11 0.12 project's return Correlation of 0.21 0.08 project's returns of Pakistan's investment with return on the other options Page 2 of 4 ***correlation of 30% Middle East investment's return with returns from 35% Africa's investment=0.17 a) Discuss factors to be considered a MNC while investing in foreign countries.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which investment project Alfa or Beta competing for funds is the best business decision (use the concepts of NPV and BEP) (watch at screenshot-table):Suppose that project Alfa is financed by investor’s own funds of 150 (expected return 15%) and by bank loan of 100 at the rate of 10%. And project Beta is financed by investor’s own funds of 100 (expected return 15%) and by bank loan of 150 at the rate of 10%.
Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm’s cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project’s cash flow and each project’s beta, as shown in the following table. Project (j) E F G Initial investment (CF0) -$15,000 -$11,000 -$19,000 Year (t) Cash inflows (CFt) 1 $6,000 $6,000 $ 4,000 2 6,000 4,000 6,000 3 6,000 5,000 8,000 4 6,000 2,000 12,000 Beta 1.80 1.00 0.60 a. Find the NPV of each project, using the firm’s cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADRj = RF + Bj x (rm -RF) Where RF = risk-free rate 2% Bj = beta of project j RADRj = risk-adjusted discount rate for project j rm = expected return on market portfolio 10% Substitute each project’s beta into this equation to determine its RADR. c. Use the RADR for each project to…
P12-20 RISK-ADJUSTED DISCOUNT RATES: BASIC Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm's cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project's cash flow and each project's beta, as shown in the following table. Excel Initial investment (CF) Year (t) 1 2 3 4 Beta E Where -$15,000 $6,000 6,000 6,000 6,000 RF B; RADR, 1.80 Project () F -$11,000 Cash inflows (CF,) $6,000 4,000 5,000 2,000 1.00 G a. Find the NPV of each project, using the firm's cost of capital. Which project is preferred in this situation? risk-free rate beta of project; T'm risk-adjusted discount rate for project ; expected return on market portfolio Substitute each project's beta into this equation to determine its RADR. -$19,000 b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADR, RF + B₂ × (rm RF) $ 4,000 6,000 8,000 12,000 0.60 2% 10% c. Use…
(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate declines from 15% to 11.5%, then the quantity of loanable funds demanded will increase by: Project IF G ІН || J Z L M a. $200. b. $1,000. c. $2,000. d. $2,200. Rate of Return on Investment 20% 18 16 14 12 10 18 6 Cost of Investment $500 300 1,000 200 2,000 1,500 1,200 800
Which investment project Alfa or Beta competing for funds is the best business decision (use the concepts of NPV and BEP): Suppose that project Alfa is financed by investor’s own funds of 150 (expected return 15%) and by bank loan of 100 at the rate of 10%. And project Beta is financed by investor’s own funds of 100 (expected return 15%) and by bank loan of 150 at the rate of 10%.
Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below. Risk Measure Project A Project B Standard deviation of project's expected NPVS $80,000 $120,000 Project beta 0.9 1.1 Correlation coefficient of project cash flows (relative to the firm's existing projects) 0.7 0.9 Which of the following statements about these projects' risk is correct? Check all that apply. O Project A has more corporate risk than Project B. O Project B has more corporate risk than Project A. O Project B has more market risk than Project A. O Project B has more stand-alone risk than Project A.
The cash flows associated with an investment project are as follows: Project Y (200 000) Year 1 100 000 2 100 000 3 120 000 4 110 000 The discount rate is 8 percent. What's the discount payback period of the projects? (compile a spreadsheet) Calculate NPV, PI of a projects Calculate IRR of a projects Should the firm accept the project? a) b) c) d)
Comparing Investment Criteria [L01,2,3,5,7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$300,000 -$40,000 1 20,000 19,000 2 50,000 12,000 3 50,000 18,000 4 390,000 10,500 Whichever project you choose, if any, you require a 15 per cent return on your investment. a. If you apply the payback criterion, which will you choose? Why? b. If you apply the discounted payback criterion, which investment will you choose? Why? c. If you apply the NPV criterion, which investment will you choose? Why? d. If you apply the IRR criterion, which investment will you choose? Why? e. If you apply the profitability index criterion, which investment will you choose? Why? f. Based on your answers in (a) through (e), which project will you finally choose? Why? Please explain your calculations and conclusions
Comparison of Projects Using Net Present Value Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows: The company’s discount rate is 18%. Required: 1. Compute the net present value of Project X. 2. Compute the net present value of Project Y. 3. Which project would you recommend the company accept?
MIA Q.1) Your company expects to earn at least 18 percent on its investments. You have to choose between two similar projects (A&B). Below is the cash information for each project. Which of the two projects would you fund if the decision is based only on financial information by using net present value model? if you use payback model which project you will choose? show your calculations? Year 0 1 2 Outflow 225000 190000 0 0 Inflow C.f DE P.V Year Outflow Inflow c. f = R-C C. F D. F P.V 3 30000 0 150000 220000 -225000-190000 150000 10000 - (1+k)" 0 300000 0 5 7 30000 0 30000- 215000 205000 197000 100000 215000 175000 197000 70000 0.847 0.718 3.669 0.516 0.437 0.37 0.314 -225000-160930 107700 115710 110 94076475 72890 219743 7: Project A 4 0 1 2 100000 0 P.V of of WPV = 5PV Project B 3 4 50000 0 50000 150000 250000 250000 200000 250000 -50000 150000 300000 1 0-8470-718 0.609 0.516 -3.000.0042356107700 اسمان M 6 0 wp-v-11975 11976 15 7 50000 30000 200000 180000 120000 150000 180000 90000…
A firm wants to start a project. A team of financial analysts estimated the following cash flows year cash flow 0 -$100,000 1 55,000 2 43,000 3 45,000 Suppose that the discount rate (interest rate) is 12%. Based on your calculation of PI, the project should Group of answer choices Not be undertaken Be undertaken in the long run not in the short run Be undertaken in the short run not in the long run Be undertaken
Evaluate the following investment project according to the Discounted Payback Period (DPP) and QUESTION 3. NPV, and advise the management whether it should be accepted or rejected. The weighted average cost of capital (WACC) of the firm is 21%. YEAR CASH OUTFLOWS 100.000 1 100.000 YEAR CASH INFLOWS 70.000 80.000 100.000 150.000 200.000 50.000 Salvage Value 1234 5

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