Big Trucks plc is considering two major projects. The first is to expand production at the Midlands factory. The second is to start production in the Far East. The returns in terms of internal rates of return depend on world economic growth. These are as follows.

Calculate
a. The expected return and standard deviation of each project.
b. An alternative to selecting one project or the other is to split the available investment funds between the two projects. Now calculate the expected return and standard deviation if half of the funds were devoted to the Midlands project and half to the Far East. Assume returns per pound invested remain constant regardless of the size of the investment.

World growth Probability of growth occurring IRR for Midlands project (96) IRR for Far East project (9%) 50 30 High Medium Low 0.3 0.4 0.3 20 18 16