Question: Using excel spread sheet: Assume a New Hospital Venture Been Analyzed in Terms of Various Cashflows Associated with Various States of the Overall Local Economy


Using excel spread sheet: Assume a New Hospital Venture Been Analyzed in Terms of Various Cashflows Associated with Various States of the Overall Local Economy The Following Table Shows the Resulting Internal Rate of Return for the Venture Under Each Potential State of the Economy and assuming a 10% Cost of Capital for all discounting State of Economy Probability of Occurrence Project Risk Adjustment Table 9% Internal Rate of Return % CV Adjustment basis points to cost of capital Very Poor 0.1 -20.00 3.0 200 Good 0.2 15.00 Very Good 0.1 20.00 1) What is the expected rate of return on the project? 2) What is the project's standard deviation of returns? 3) What is the project's coefficient of variation (CV) of returns? 4) What type of risk does the standard deviation and CV measure? 6) In what situation is this risk relevant? 6) You will learn more about the coefficient of variation in later chapters, but if know that a coefficient under 2.0 is considered "average risk" do you think we would need to apply any "risk" adjustment factor to our cash flows cost of capital? If no, why not. If yes, what would our new cost of capital and explain your answer 6) You will learn more about the coefficient of variation in later chapters, but if know that a coefficient under 2.0 is considered "average risk" do you think we would need to apply any "risk" adjustment factor to our cash flows cost of capital? If no, why not. If yes, what would our new cost of capital and explain your answer 7) Explain the difference between a number stated as a percentage vs. "basis points"
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