Find expected value of npv for each of the projects find

Assignment Help Microeconomics
Reference no: EM13393106

Your company asked you to evaluate two potential projects. These projects are active for 10 years and have no salvage life. Both have the same upfront costs, but the revenue stream from each of the projects is subject to variation, so risk is involved.

You are given the following information:
Firm's cost of capital: 10%
Each project will require three years of investment before revenues are generated.
The following cost distribution is given:

  Probability of Outcome Year 1 Investment Costs Year 2 Investment Costs Year 3 Investment Costs Expected Annual Revenues in Year 4 Expected Rate of Increase in Annual Revenues
Project 1            
 Outcome A 20% $1,000 $2,000 $1,000 500 2%
 Outcome B 40% $1,000 $2,000 $1,000 650 3%
 Outcome C 40% $1,000 $2,000 $1,000 850 4%
Project 2            
 Outcome A 10% $1,000 $2,000 $1,000 675 2%
 Outcome B 50% $1,000 $2,000 $1,000 700 2.40%
 Outcome C 40% $1,000 $2,000 $1,000 725 2.80%

In a new worksheet in Excel, answer the following:
1. What is the expected value of the NPV for each of the projects?
2. What is the standard deviation of the NPV for each of the projects?
3. What is the coefficient of variation of the NPV for each of the projects?
4. Which project has a higher expected return? Which has more risk?
5. Which one would you recommend to your company? How does its attitude toward risk affect your answer?

Reference no: EM13393106

Questions Cloud

Write down the key attributes of the transformational style : change is considered by many as the new normal. effective change management must be part of an organizations dna. an
What are the advantages in using a computer spreadsheet : explain why no single approach will always work in a complex and competitive business world.what are the advantages in
Understanding supply chain and how the consumer can play a : understanding supply chain and how the consumer can play a critical role in the supply chain is an important part of
What is comparative advantage and how does it affect : nbspnbspnbsp what is comparative advantage and how does it affect businesses? nbspnbspnbsp what is the difference
Find expected value of npv for each of the projects find : your company asked you to evaluate two potential projects. these projects are active for 10 years and have no salvage
What is the breakeven point what decisions does the : what is the breakeven point? what decisions does the breakeven point help an organization to make?what financial
Three recent graduates of the computer science program at : 1.three recent graduates of the computer science program at the university of tennessee are forming a company that will
Which of the given is the total requirement uby sing an mrp : which of the following is the net requirement using an mrp program if the gross requirement is 10000 and the inventory
Develop a written proposal outlining a specific product or : develop a written proposal outlining a specific product or service idea you have as the product manager for triangle

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd