Calculate the reward to risk ratio for combination of firm

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Reference no: EM131189160

A firm’s existing assets have an expected return of 16% and an associated standard deviation of 20%. A proposed project has an expected return of 26% and an associated standard deviation of 30%. The covariance between the existing firm and the project is estimated to be 0.35%. The market value of the firm’s existing assets is $8,000,000. The project costs $2,000,000. Assume risk free rate is 6%.

(A) Calculate the reward to risk ratio for the firm.

(B) Calculate the reward to risk ratio for the project.

Reference no: EM131189160

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