John Q. Enterprises is considering two potential investments. The probability distributions of annual
end-of-year cash flows for the respective projects are:
Project A Project B
Probability Outcome Probability Outcome
0.25 $10,000 0.25 $12,000
0.50 $15,000 0.50 $15,000
0.25 $20,000 0.25 $18,000
Both projects will require an initial outlay of $45,000 and will have an estimated life of 6 years. Project A is
considered a riskier investment and will have to have a risk-adjusted required rate of return of 15%, while
Project B's risk-adjusted required rate of return is 12%.
a. Determine the expected value of each project's annual cash flow.
b. Determine each project's risk-adjusted net present value.
Project A Project B
a. $15,000 $15,000
b. $11,767.24 $16,671.11
You might also like to view...
Brain research suggests that we receive help in empathizing with others because certain brain circuits reflect the actions and intentions of others as if they were our own
Indicate whether the statement is true or false.
As allocated by the OS, the resources that are apparent to a program or user are called ____
a. physical resources b. managed resources c. virtual resources d. exposed resources
What is data encryption?
One of the suggestions of the new trade theory is that:
A. differences in technology leads to differences in productivity, which in turn, drives international trade patterns. B. nations may benefit from trade irrespective of resource endowments or technology. C. the demand for most new products tends to be based on nonprice factors. D. globally dispersed production reduces the production costs of mature products. E. comparative advantage does not arrive from a difference in factor endowments but from a difference in productivity.