Average project of that firm has coefficient of variation

Assignment Help Financial Management

Reference no: EM131055540

A firm is considering a new project that has a cost of $1,000. Suppose, the CFO asked you to set up the decision tree to show its three most likely scenarios. The best case scenario happens with probability of 0.2, and produces three cash flows of $800 at t=1,2,3. With probability of 0.6 the base case scenario produces cash flows of $520 for the next three years. With the remaining probability the worst case scenario leads to negative cash flow of -$200 at time 1, after which the firm could arrange with its work force and suppliers to cease operations at the end of Year 1. Assume that WACC is 7%.

a. What is the expected NPV of the new project?

b. Is the project risky given that the average project of that firm has a coefficient of variation of 1.7? Prove by finding CV of the project.

Reference no: EM131055540

Questions Cloud

When is it most valuable to preserve a plant species : When is it most valuable to preserve a plant species?

Aware of a new cellular phone company : A person who has been using the wireless services of company A finds it costly and is aware of a new cellular phone company that offers lower cost services for the same quality of service that company A provides.

Substantial time and money in training : A consulting company has been using a certain software for its products. The company has also invested substantial time and money in training its employees to use the latest version of the software.

Determine the load to be imposed on foundation : Determine the load to be imposed on foundation - Using Meyerhof's method and using Terzaghi's method by considering General Shear Failure mode.

Average project of that firm has coefficient of variation : A firm is considering a new project that has a cost of $1,000. Suppose, the CFO asked you to set up the decision tree to show its three most likely scenarios. The best case scenario happens with probability of 0.2, and produces three cash flows of $8..

What advice would you give to employers from this case : If you agree or disagree with the court's decision, explain why. What advice would you give to employers from this case?

Stock is expected to pay dividend : A stock is expected to pay a dividend of $1.75 the end of the year (that is, D1 = $1.75), and it should continue to grow at a constant rate of 3% a year. If its required return is 13%, what is the stock's expected price 5 years from today? Round your..

Support the purpose of fire inspections : Diamantes describes seven key components that support the purpose of fire inspections. Select one of the seven, and provide a real-world example that explains why the component you selected is vital to fire safety.

Discuss the native american situation and jacksons response : One of the most significant issues facing the Jackson administration was the "Indian problem." Discuss the Native American situation in the 1830s and Jackson's response.

User Account

All Pages