Two projects have the following NPVs and standard deviations: Which of the two projects is morerisky? Project
Question:
Which of the two projects is morerisky?
Project A 200 75 Project B 300 100 NPV Standard deviatiorn
Step by Step Answer:
Conclusion The NPV of the project B is more than Project A so ...View the full answer
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Corporate Finance questions
-
Two mutually exclusive investment projects have the following forecasted cash flows: a. Compute the internal rate of return for each project. b. Compute the net present value for each project if the...
-
Two random variables, X and Y, have standard deviations 2.4 and 3.6, respectively. Which one is more likely to take a value close to its mean? Explain your answer.
-
Two area hospitals have jointly initiated several planning projects to determine how effectively their emergency facilities can handle disaster-related situations at nearby Tech University. These...
-
On the accompanying graph, draw the consumption function C = $200 + 0.75YD. (a) At what level of income do households begin to save? Designate that point on the graph with the letter A. (b) By how...
-
An electronic switch has a constant failure rate of 10-3 per hour. (a) What is the expected life of the switch? (b) What is the standard deviation of the life of the switch? (c) Find the probability...
-
NFL Contracts 2019 contains the yearly salary (in millions of dollars) from the contracts of all players on a National Football League (NFL) roster at the start of the 2019 season. (a) Use StatKey or...
-
Use the data in Short Exercise 16-12 to prepare Little People Learning Center's (LPLC) statement of cash flows for the year ended June 30, 2005. LPI.C uses the direct method for operating activities....
-
Smith-Kline Company maintains inventory records at selling prices as well as at cost. For 2011, the records indicate the following data: Required: Assuming the price level increased from 1.00 at...
-
Change the file name for index.html to index.php Add PHP code to index.php to display an error message named $error_message just below the page heading. Be sure to check that $error_message is not an...
-
What is the problem statement in the following situation? (1 statement) Employee Loyalty: Companies benefit through employee loyalty. Crude downsizing in organizations during the recession crushed...
-
Looking at the above problem, suppose that the German bond paid interest semiannually like a U.S. bond. (The bond would pay .025 x 100 = 2.5 euros every six months).
-
Your firm has an opportunity to make an investment of $50,000. Its cost of capital is 12 percent. It expects after tax cash flows (including the tax shield from depreciation) for the next 5 years to...
-
Evaluate at least (2) factors that make financial statement analysis essential to management, investors, and creditors. Provide a rationale for your response. Imagine you are considering investing in...
-
Joaquin purchased a $235,000 crane for a construction business. The crane was sold for $175,000 after taking $115,000 of depreciation. Assume Joaquin is in the 35% tax rate bracket. Required: a. On...
-
Discuss standpipe and hose systems for fire protection and firefighting. You might consider the following questions to help you get started List and discuss the different types of standpipes and the...
-
10. A skateboarder travels down a slope. At which point does he have his greatest kinetic energy? 11. A pendulum is a mass on a string that swings back and forth to some angle. When is the kinetic...
-
Subtract the following terms, if possible. 72x-18x
-
A mid-sized tech company is finalizing a complex software solution for a large international client. The client is unfamiliar with the technical aspects but needs a thorough understanding of the...
-
How do smell and taste function?
-
Michelles trust is subject to 3.8% surtax on the lesser of the trusts net investment income or the excess of the trusts adjusted gross income over the $12,400 threshold (the highest trust tax rate)....
-
A $1000 face value bond has a conversion ratio of 48. You estimate the transaction costs of conversion to be 2.7% of the face value of the bond. What price must the stock reach in order for you to...
-
Use your answer from Exercise E4-18 to prepare Voice Links financial statements. Requirements 1. Complete the income statement for the month ended November 30, 2016. 2. Complete the statement of...
-
Refer to the data in Short Exercise S4-1. Prepare Daylens statement of retained earnings for the year ended December 31, 2017. In Short Exercise S4-1 DAYLEN HAIR STYLISTS Adjusted Trial Balance...
-
The adjusted trial balance of Smith Sign Company follows: Requirements 1. Assume Smith Sign Company has a January 31 year-end. Journalize Smiths closing entries at January 31. 2. How much net income...
-
The Walton Toy Company manufactures four dolls and a sewing kit. It provided the following data for next year: 65,000 Product Demand Next year (units) Debbie Trish Sarah Mike Sewing kit Selling Price...
-
3.2 Consider the time-cost table below and its network. Suppose indirect cost is $1.50 per day. Consider only the direct cost presented in the table below. Perform the time-cost trade-off method and...
-
Following is information from Fredrickson Company for its first month of business. Credit Sales January 10 January 19 January 23 Stern Company Diaz Brothers Rex Company Cash Collections $ 8,200...
Study smarter with the SolutionInn App