Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Textbook Question
Chapter 13, Problem 1P
Assume you are risk-averse and have the following three choices. Which project will you select? Compute the coefficient of variation for each.
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By using the formula of risk and return, find the answer:
QUESTION 5
Invest in any or all of the four projects whose relevant cash flows are given in the following table.
The firm has RM7,000,000 budgeted to fund these projects, all of which are known to be
acceptable. Initial investment for each project is the same for all projects which is RM1,600,000.
The rate of retum for all projects is equivalent to 8%.
Operating cash outflow
Project X
Project Y
Year 1
Cash Outflow
RM1,600,000 (for each project)
RM
440,000
340,000
220,000
(110,000)
( 95,000 )
105,000
Operating Cash Inflows
RM
140,000
180,000
250,000
260,000
370,000
460,000
1
2.
3.
4.
5.
6.
7.
220,000
388,000
8.
9.
Use this table for PROJECT X and Y
Period
PVIF 8%
0.9259
0.8573
3
0.7938
4
0.7350
0.6806
0.6302
7
0.5835
8
0.5403
0.5002
10
0.4632
If three investment alternatives all have some degree of risk and different expected returns, which of the following measures could best be used to rank the risk levels of the projects?
Group of answer choices
The standard deviation of returns
The coefficient of correlation
The coefficient of variation
The net present value
Chapter 13 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 13 - Prob. 1DQCh. 13 - Discuss the concept of risk and how it might be...Ch. 13 - When is the coefficient of variation a better...Ch. 13 - Explain how the concept of risk can be...Ch. 13 - If risk is to be analyzed in a qualitative way,...Ch. 13 - Assume a company, correlated with the economy, is...Ch. 13 - Assume a firm has several hundred possible...Ch. 13 - Explain the effect of the risk-return trade-off on...Ch. 13 - What is the purpose of using simulation analysis?...Ch. 13 - Assume you are risk-averse and have the following...
Ch. 13 - Myers Business Systems is evaluating the...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Possible outcomes for three investment...Ch. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 12PCh. 13 - Waste Industries is evaluating a 70,000 project...Ch. 13 - Prob. 14PCh. 13 - Debby’s Dance Studios is considering the...Ch. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Allison’s Dresswear Manufacturers is preparing a...Ch. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Ms. Sharp is looking at a number of different...Ch. 13 - Prob. 25P
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- Suppose the net present values of projects A and B show a distribution as follows. a) Compare the projects by expected value criteria?b) Compare the projects by standard deviation criteria?c) Evaluate A and B projects according to the coefficient of variation criterion?Calculate on paper.arrow_forwardDefine the following terms, using graphs or equations to illustrate youranswers wherever feasible: b. Indifference curve; optimal portfolioarrow_forward1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.arrow_forward
- What must be true about the sign of the risk aversion coefficient, A, for a risk lover? Draw the indifference curve for a utility level of .05 for a risk lover.arrow_forwardThe decision tree below describes a “sure thing” investment and a “risky” investment. Use backward induction to evaluate which is the better investment. Assume all values are already given in present value terms.arrow_forwardDraw a graph showing the feasible set of risky assets, the efficientfrontier, the risk-free asset, and the CMLarrow_forward
- The best investment ____________________. Select one or more: a. maximizes reward b. maximizes Sharpe c. minimizes risk d. eliminates riskarrow_forwardAnother name for the expected value of an investment would be: Answer a. The mean value b. The upper-end value c. The certain value d. The risk-free valuearrow_forwardGiven the following probability distribution for assets X and Y, compute the expected rate of return, variance, standard deviation, and coefficient of variation for the two assets. Which asset seems to be a better investment?arrow_forward
- Describe the advantages of using CAPM model to determine the expected return.arrow_forwardYou are considering three alternative investments:arrow_forwardan efficient portolio ...... 1) minimise return for a given level of risk 2) minimise risk for a given level of return 3) minimize both risk and return 4) all the options choose the correct statementarrow_forward
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