The management of Pride Ltd is considering investing in the building of a medium-sized shopping mall...

 

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The management of Pride Ltd is considering investing in the building of a medium-sized shopping mall Pride Rock Mall. They have identified a suitable site in Pride Land or an alternative site in Exile. Management has requested you to calculate the relevant expected returns and risks for each of these projects. After a full scenario analysis has been conducted, the following information about the two projects was available: The initial investment will be R30 000 000. The required return on the investment is 10%. Pride Ltd's management is risk averse in their decision-making. Management deems a percentage of 5% or more significant. Estimated returns based on probable economic conditions: Probability Pride Land 25.00% 45.00% 30.00% • ● ● Pessimistic Most likely Optimistic 9.50% 13.00% 17.50% Exile 8.00% 11.00% 14.00% Required: Show all calculations and round off all calculations to two decimal values. 3.1 Calculate the expected return and standard deviation for project Pride Land. Calculate the expected return and standard deviation for project Exile. 3.2 3.3 Calculate the risk range for the projects. 3.4 Use the results of the above calculations and your knowledge of return and risk to compare the two projects and to recommend to Pride Ltd's management the project that they should consider. Provide reasons for your recommendation. (7) (9) (9) The management of Pride Ltd is considering investing in the building of a medium-sized shopping mall Pride Rock Mall. They have identified a suitable site in Pride Land or an alternative site in Exile. Management has requested you to calculate the relevant expected returns and risks for each of these projects. After a full scenario analysis has been conducted, the following information about the two projects was available: The initial investment will be R30 000 000. The required return on the investment is 10%. Pride Ltd's management is risk averse in their decision-making. Management deems a percentage of 5% or more significant. Estimated returns based on probable economic conditions: Probability Pride Land 25.00% 45.00% 30.00% • ● ● Pessimistic Most likely Optimistic 9.50% 13.00% 17.50% Exile 8.00% 11.00% 14.00% Required: Show all calculations and round off all calculations to two decimal values. 3.1 Calculate the expected return and standard deviation for project Pride Land. Calculate the expected return and standard deviation for project Exile. 3.2 3.3 Calculate the risk range for the projects. 3.4 Use the results of the above calculations and your knowledge of return and risk to compare the two projects and to recommend to Pride Ltd's management the project that they should consider. Provide reasons for your recommendation. (7) (9) (9)

Answer rating: 100% (QA)

Expected Return for Project Pride Land Ie ER Probability of Pessimistic condition for Project Pride ... View the full answer