Project A has expected return of K500,000 while project B has expected return of K100,000. The variances for A and B are K25, 000,000 and K1, 000,000 respectively. a) Compute the coefficient of variation for the two projects b) Which of the two projects is more risky? c) The risky cash flow for project D is K150,000 in perpetuity and the risk adjusted return is 15%. What are the certainty equivalent cash flows when the risk free rate is 10% d) Should project D be accepted if it costs K105,000?

Project A has expected return of K500,000 while project B has expected return of K100,000. The variances for A and B are K25, 000,000 and K1, 000,000 respectively. a) Compute the coefficient of variation for the two projects b) Which of the two projects is more risky? c) The risky cash flow for project D is K150,000 in perpetuity and the risk adjusted return is 15%. What are the certainty equivalent cash flows when the risk free rate is 10% d) Should project D be accepted if it costs K105,000?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 2P

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