Which of the two expansion options would you choose

Assignment Help Finance Basics

Reference no: EM132027225

Question: You are the owner of a firm considering two expansion options. Option A has an expected net present value of $100,000 and a standard deviation of $20,000. Option B has an expected net present value of $110,000 and a standard deviation of $80,000. Your estimated probability distributions of the two options are as shown below.

a. The firm you own is a small one. This project would strain your resources, and the firm might struggle for some time if returns from the project turned out to be poor. Given that background, which of the two expansion options would you choose? Explain.

b. Before you can undertake that expansion, you have sold your firm to a much larger corporation, so your firm becomes a small division of that corporation. You manage that division. Now your expansion is only a small project among many investments that the large corporation is undertaking. You decide that the profitability of your expansion would be uncorrelated with the returns from the investments of the large corporation's other divisions. Given the probabilities specified for Options A and B, which option would you pick in the best interests of the corporation's shareowners? Explain.

Reference no: EM132027225

Questions Cloud

Explain a strategy you might use as a social worker : Income and wages are measurable indicators of how prosperity is distributed amongst social class. Wealth, often determined .

What will be the profit per share in five years : P/E Ratio Model and Future Price Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing.

P-value corresponding to value of standardized test : What is the P-value corresponding to the value of the standardized test statistic, z. need to know conclusion if rejected or not!

Analysis of how classism has factored into your life : Analysis of how classism has factored into your life. Then, explain a strategy you might use as a social worker to address the impact of class.

Which of the two expansion options would you choose : The firm you own is a small one. This project would strain your resources, and the firm might struggle for some time if returns from the project turned out.

What is the value of performing hypotheses tests : What is the value of performing hypotheses tests to solve problems related to business and operations management?

How classism is demonstrated in the hernandez video : Identify specific barriers to social services that the Hernandez family experiences because of their class status (e.g., working poor).

What percentage of gmat scores are 747 or higher : What percentage of GMAT scores are 747 or higher (to 1 decimal)?

For what price does the dividend-discount model predict : Analysts are predicting an 10.1% per year growth rate in earnings over the next five years. After that, Colgate's earnings are expected to grow.

User Account

All Pages