Q.6. A project with an initial outlay of OMR1m has a 0.3 probability of producing a return of OMR800,000 in year 1 and a 0.7 probability of delivering a return of OMR600,000 in year 1. If the OMR800,000 result occurs then the second year could return either OMR700,000 (probability of 0.4) or OMR300,000 (probability of 0.6). If the OMR600,000 for year 1 occurs then either OMR600,000 (probability of 0.8) or OMR400,000 (probability of 0.2) could be received in the second year. All cash flows occur on anniversary dates. The discount rate is 11 per cent. (a) Calculate the expected return and standard deviation. (b) What is the type of probability displayed in this question?

Q.6. A project with an initial outlay of OMR1m has a 0.3 probability of producing a return of OMR800,000 in year 1 and a 0.7 probability of delivering a return of OMR600,000 in year 1. If the OMR800,000 result occurs then the second year could return either OMR700,000 (probability of 0.4) or OMR300,000 (probability of 0.6). If the OMR600,000 for year 1 occurs then either OMR600,000 (probability of 0.8) or OMR400,000 (probability of 0.2) could be received in the second year. All cash flows occur on anniversary dates. The discount rate is 11 per cent. (a) Calculate the expected return and standard deviation. (b) What is the type of probability displayed in this question?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

What is the expected NPV of the following decision tree? The net flow and associated probability is shown above and below each branch for the two-year project. a. -R18.72m b. -R5.56m c. R5.00m d. R16.12m
Observe the graph below and identify the internal rate of return. Assume that the discount rate is 8%. What is the net present value of the project? Briefly explain if the project is viable or not? NPV 50000 40000 30000 20000 10000 4 10 12 14 16 18 20 22 24 • 26 28 -10000 discount rate Edit View Insert Format Tools Table
Question Answer 1. If the payback on a project is 3.2 years will the discounted payback be more or will it be less than 3.2 years? 2. If the IRR of a project is 10% will the MIRR be more or will it be less than 10%? 3. What does Payback inform us about the risk of project? 4. What does IRR inform us about the risk of project?
You are considering the following two mutually exclusive investments: Project Year 0 Year 1 Year 2 A -$80 0 $120 B -$40 $28 $28 Which project has the higher NPV if the required rate of return is 5%?
If a project has a profitability index of 1.20, then the project's internal rate of return is O equal to the discount rate. O less than the discount rate. O greater than the discount rate. O equal to 20%. Save for Later O 10 C Attempts: 0 of 1 used F10 Submit Ans
1) You are considering the following mutually exclusive projects: (15pts) 1 4. Project A -400 50 50 50 230 230 Project B -600 300 300 50 50 50 if the firm required return (WACC) is 10%: a. What is the NPV of project A? b. What is the IRR of project A? C. What is the NPV of project B? d. What is the IRR of project B? e. Which one you must select? a. b. C. d. e.
You are considering a project that costs OMR600 and has expected cash flows of OMR224, OMR250.88 and OMR280.99 over the next three years. If the appropriate discount rate for the project's cash flows is 12%, what is the net present value of this project? Select one: O a. The NPV is negative O b. OMR 0.00 O c. OMR 9.34 O d. OMR84.75 O e. OMR49.34
Suppose that you found the probabilities and expected NPVs of 3 scenarios for a timing option: E(NPV) probability $0.15 0.30 $10.35 0.50 $42 0.20 1. What is the expected NPV of the timing option? Show your work. 2. Suppose, that the expected NPV of the project if proceeding today is $14. Should the project be delayed based on your finding in part 1 or should the management implement it today? Briefly explain.
Suppose the net present values of projects A and B show a distribution as follows. Net Present Value (TL) 750 1000 1250 1500 1750 Project A 0.1 0.15 0.2 0.25 0.3 Project B 0.15 0.25 0.3 0.1 0.2 a) Compare the projects according to the expected value criteria? b) Compare the projects by standard deviation criteria? c) Evaluate A and B projects according to the coefficient of variation criteria?
Thank you for calculating the IRR. Could you also answer the question "If the required return is 11 percent, should the firm accept the following project?". An explanation would also be extremely helpful. Thank you!
The NPV of a project involving an initial investment of x0 at time zero and a constantstream of cash flows x > 0 in all subsequent periods, 1, 2, ...,∞, is x/r − x0. Doyou remember how to derive this result from first principles? What if the project isexpected to be discontinued after T > 1 periods?
An expansion project that has an expected return of 25% and a standard deviation of 30%. Find the project's coefficient of variation? a) 1.32 b) 0.83 c) 1.20 d) 1.39 e) 1.26