3. Duqm Chemical Company is contemplating to invest in a new project which costs RO 100,000. The expected cash flow on this project under various scenarios are given below: State of Economy Probability End of year 1 (RO) 50,000 75,000 100,000 End of Year 2 (RO) 75,000 100,000 150,000 Recession 0.3 Growth 0.5 Boom 0.2 Assume that the state of the economy will be the same in the second year as in the first. The required rate of return is 8%. There is no tax or inflation. Required: 1. Calculate Expected NPV 2. Calculate the Standard Deviation of NPV 3. Appraise the management about this project with your comments. 4. Why we need to analyse the project risk at the time of evaluating capital budgeting.
3. Duqm Chemical Company is contemplating to invest in a new project which costs RO 100,000. The expected cash flow on this project under various scenarios are given below: State of Economy Probability End of year 1 (RO) 50,000 75,000 100,000 End of Year 2 (RO) 75,000 100,000 150,000 Recession 0.3 Growth 0.5 Boom 0.2 Assume that the state of the economy will be the same in the second year as in the first. The required rate of return is 8%. There is no tax or inflation. Required: 1. Calculate Expected NPV 2. Calculate the Standard Deviation of NPV 3. Appraise the management about this project with your comments. 4. Why we need to analyse the project risk at the time of evaluating capital budgeting.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 3CMA
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