EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 8, Problem 2P
Summary Introduction
To determine: The chance that the project will result in return above 33% and probability of negative rates of returns.
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A project has an expected net present value of $50,000 with a standard deviation of the net present value of $20,000. Assume that NPV is normally distributed.
What is the probability that the project will have a negative NPV?
The return expected from the project no. 542 is 22 percent. The standard deviation of these return is 11 percent. If returns from the project are normally distributed. What is the chance that the project will result in a rate of return above 33 percent?
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?
Chapter 8 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 8 - Prob. 1QTDCh. 8 - Prob. 2QTDCh. 8 - Prob. 3QTDCh. 8 - Prob. 4QTDCh. 8 - Prob. 5QTDCh. 8 - Prob. 6QTDCh. 8 - Prob. 7QTDCh. 8 - Prob. 8QTDCh. 8 - Prob. 9QTDCh. 8 - Prob. 10QTD
Ch. 8 - Prob. 11QTDCh. 8 - Prob. 12QTDCh. 8 - Prob. 13QTDCh. 8 - Prob. 14QTDCh. 8 - Prob. 15QTDCh. 8 - Prob. 16QTDCh. 8 - Prob. 17QTDCh. 8 - Prob. 18QTDCh. 8 - Prob. 19QTDCh. 8 - Prob. 20QTDCh. 8 - Prob. 21QTDCh. 8 - Prob. 1PCh. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28P
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- An investment has been found to have two different IRRs, one at 14% and the other at 20%. When a required return of 17% is used, the NPV of the investment is negative. Knowing this: a. What range of required returns will generate a negative NPV? b. What range of required returns will generate a positive NPV?arrow_forward8. Modified Internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 -200,000 425,000 475,000arrow_forwardA project under consideration has an Internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9%, and the expected rate of return on the market portfolio is 17%. a. What Is the reguired rate of return on the project? (Do not round Intermediate calculations. Enter your answer as a whole percent.) b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.50? (Do not round Intermedlate calculations. Enter your answer as a whole percent.) d. If project's beta is 1.50, should the project be accepted? a. Required rate of return b. Accept the project C. Required rate of return d. Accept the project 券 MacBook Proarrow_forward
- Suppose that a project has an Internal Rate of Return of 9% and a beta of 1.0. The current risk-free rate is 4% and the market premium is 7%. The Net Present Value of this project is Positive Negative Zeroarrow_forwardZLY calculates that a project with conventional cash flows and a required return of 14% has a negative NPV. What do we then know about the project's internal rate of return? A) equal to 21% B) greater than 14% C) less than 14% D) equal to zeroarrow_forwardA project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk-free rate is 6%, and the expected rate of return on the market portfolio is 16%. a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.90? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If the project's beta is 1.90, should the project be accepted?arrow_forward
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