our mutually exclusive aiternotnves are compared and their intefnal rate of return (IR) values afe as follows: A 1.2%; 123%; C13.1%; and D 28%. Which alternative(s) must be selected if MARR = 11%?
Q: Five alternatives (A, B, C, D, and E) are compared. The present worth (PW) and internal rate of…
A: While evaluating various capital budgeting proposals, the top-level management or the owners of the…
Q: When using present worth to evaluate the attractiveness of a single investment alternative, what…
A: To calculate the attractiveness of investment there is need to calculate the present worth is…
Q: Evaluate the two alternatives A and B and decide the economic justified alternative using: Present…
A: Comment- Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…
Q: If you perform a NPV analysis on a perspective investment using a "d" = 15% and: a. the…
A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…
Q: ould it sell for in order to yield a 7.5% nominal return on the investment? O $522,150 O $542,487…
A: Bonds are the debt obligations of a business on which it requires to pay regular interest to the…
Q: B 15.5% 20.2%
A: The coefficient of variation can be computed as follows :
Q: ould be a better discount rate for this investment? (Enter your answer as a percent rounded to 1…
A: Wacc is weighted average cost of capital that at which firms are able to raise money.
Q: Given the following variables: S = $50, E = $45, T = 1 year, r = 2 %, and P = $5; if the call option…
A: Given, Stock price (S) = $50 Strike price (E) = $45 T = 1 year r = 2% Put price (P) = $5
Q: An investment opportunity has two possible outcomes. One outcome yields a $150 payoff and has a…
A: Risk is the standard deviation
Q: company's discount rate is 12%, then the net present value for this investment is closest to:…
A: NPV= Present value of cashinflows - Present value of cashoutflows.
Q: a. What price should Vencap offer for the investment opportunity if it requires a 9.9% return on…
A: Market price of the share when multiplied with the number of shares acquired by the company gives…
Q: Alternatives X and Y have rates of return of 10% and 18%, respectively. What is known about the rate…
A: It is not true that the highest rate of return always give a better investment result. The problem…
Q: The single sum, present worth factor: a. Can be depicted as (1 + i)−n b. Can be depicted as (P|F…
A: Today’s worth of dollars at a later date is the Present Value of the dollar. For example, the value…
Q: The returns on share A follow the market model with coefficients aa = 0.01, ßa = 1.25. If at time t,…
A: Alpha term (a) = 0.01 Beta term (b) = 1.25 Market return (Rm) = 0.02 Actual return of A (Re) = 0.025…
Q: ginning of curr with the follow lative preferenc a value P12, aut areş, P1,000,000
A: To find the amount of ordinary share and preference share as,
Q: If the T Bill rate is 1.1% and the market risk premium is 10.8%, what is the CAPM-implied expected…
A: Portfolio is a bunch of various assets or investments. Investors invest their funds in various…
Q: This calculation determines profitability or growth potential of an investment, expressed as a…
A: Given: The expression of the growth potential of investment is given and to find out the point at…
Q: Two assets, Q & R, each have a standard deviation of 10%. Asset Q's expected return is 8.5% and…
A: The rate of return that an investor is expected to earn from the investment is term as the expected…
Q: For the options shown below, the values of n that you should use to make a correct comparison by the…
A: Interest Rate = 10% Option A: Capital Cost = -65,000 Annual Cost = -20,000 Salvage Value = 24,000…
Q: You are reviewing an investment with the following price history as of December 31steach year.…
A: Year Price 2016 1.45 2017 1.78 2018 1.26 2019 1.71 2020 1.91
Q: Recall the definition of the correlation coefficient of two random variables, defined as AB PAB The…
A: Portfolio is a bundle of different investments. To reduce or decrease the risk, investors invest the…
Q: Let each decision variable, A, P, M, H, and G, represent the fraction or proportion of the total…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: 9% b. 20% c. 26% d. 22
A: IRR is a rate at which present value of cash inflows is equal to present value of cashoutflows.
Q: Interpret your results in (c) above, assuming that the historical average return of 8.5% from the…
A: d) In part c, at a rate of 8.59% the stock is considered to be fairly priced. However, since the…
Q: If the MARR=I5%, which option would be selected? On the same excel spreadsheet use excel functions…
A: Present worth is calculated by sum of present value of cash flows. It is calculated by NPV function…
Q: Consider the following payoff table that represents the profits earned for each alternative (A, B,…
A: Given that A,B and C are alternatives of profit earned and S1, S2 ,S3 are states of nature .…
Q: When using annual worth to evaluate the attractiveness of a single alternative, what value is the…
A: AW (annual worth) is compared to 0.0 0.0 value is calculated for the AW(annual worth) and…
Q: states of nature in the future period, A and B, have the state prices 0.33 and 0.55 today,…
A: A risk free return is a potential return on a secure investment that reflects the interest that the…
Q: Determine, using Capital Assets Pricing Model (CAPM), the Expected Rate of Return Risk free rate was…
A: In given question we need to compute the expected rate of return for asset K.
Q: Calculate the Payback period, Accounting Rate of Return and the Net Present Value (using a 17%…
A: Given:
Q: (a) If Pena Company requires a 9% return on its investments, what is the net present value of this…
A: Net Present Value(NPV) is a financial metric that is used to evaluate the potential investment…
Q: a. Using net present worth analysis, calculate the rate of return for all four alternatives, and b.…
A: The methods stated above namely the net present worth analysis and the ROR analysis or rate of…
Q: What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after…
A: The Beta: In the CAPM, the beta is a measure of the sensitivity of the stock's returns to that of…
Q: The internal rate of return equals the rate that yields a profitability index of 1 for an…
A: Internal rate of return is the rate at which the Present Value of Cash inflows is equal to the…
Q: Calculate the payback period.(using a 17% discount factor) and a fair approximation range of the…
A: Given:
Q: A project that was analyzed under the assumption of 3% inflation was found to have a unadjusted…
A: Given, Inflation rate : 3% Unadjusted IRR : 18%
Q: Five alternatives (A, B, C, D, and E) are compared. The present worth (PW) and internal rate of…
A: Alternative NPV IRR A 1500 13.42% B 570 12.85% C 1300 11.91% D 2300 12.54% E 2950 12.95%…
Q: Use the future value formula to find the indicated value. n = 50; i = 0.02; PMT= $72; FV = ? FV=$…
A: Time value of money (TVM) refers to the method or technique which is used to measure the amount of…
Q: of 15% of ay investment returns above the l-bill răte, d suffers a loss of 10.5%. What rate of…
A: Incentive fee = 15% T-bill rate=2% First year loss=10.5 Rate of return in the second year for…
Q: We have three assets A1, A2, A3 and the following information: E(r1)=15%, σ1=12%,; E(r2)=19% and…
A: The diversification of assets: A portfolio comprises various assets in order to reap the benefits of…
Q: When comparing multiple mutually exclusive alternatives, select the alternative that __________ the…
A: When given alternatives are mutually exclusive only one can be selected because only one is needed.…
Q: Assume that Rf = 6 percent and the market risk premium (Km - Rf) is 7.0 percent. Compute Kj for the…
A: In this question we require to compute the Kj i.e. expected return.
Q: Here are the estimated ROE distributions for Firms A, B, and C: Probability 0.1 0.2 0.4…
A: Hello, you have posted multiple questions. As per our guidelines, I have solved the first question.…
Q: There are some cases in which the present worth (( PW )) of an investment is positive while its…
A: Investments are the methods adopted by individuals and corporations for the purpose of parking or…
Q: According to Wald's criterion, which investment is decided by looking at the profitability of three…
A: The wald's criterion is the maximin criterion of selecting the best suitable alternative from a…
Q: If the first increment (B-A) AROR is 6.3%, and 2hd increment (C-B) AROR is 3.1%. The best…
A: Incremental rate of return Analysis It is the analysis of financial return to investor where…
Q: For each of the following option positions state the risk profile, draw the profit and loss area and…
A: Options are derivative financial instruments dependent on the value of underlying securities like…
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Step by step
Solved in 2 steps
- e. IMPORTANT Note that from this example that a higher IRR for a nindividual alternative does not gurantee that the alternatvie is more economical than the one with a lower IRR. It is the incremental IRR value relative to the MARR that determines which alternative is more economical. The result of the incremental analysis are always the same as those of the PW,AW, or FW anaylsisFour mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters.The resulting PW values over the LCM are determined as shown. The best alternative to select under the stated condition is:a. pessimistic: select alternative 2b. optimistic: select alternative 2c. pessimistic: select alternative 1d. optimistic: select alternative 4When comparing two mutually exclusive alternatives by the ROR method, if the rate of return on the alternative with the higher first cost is less than that of the lower first-cost alternative: (a) The rate of return on the increment between the two is greater than the rate of return for the lower first-cost alternative (b) The rate of return on the increment is less than the rate of return for the lower first-cost alternative (c) The higher first-cost alternative may be the better of the two alternatives (d) The lower first-cost alternative should be selected
- The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 d1 200 150 150 d2 250 150 100 The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2. (a) What is the optimal decision strategy if perfect information were available? S1 : S2 : S3 : (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.Choices for the last requirement, "determine the approximate internal rate of return from the choicies (pick the closest answer. a. 29% b. 20% c. 26% d. 22%Let each decision variable, A, P, M, H, and G, represent the fraction or proportion of the total investment placed in each investment alternative. Max 0.073A + 0.103P + 0.064M + 0.075H + 0.045Gs.t. A + P + M + H + G = 1 0.5A + 0.5P - 0.5M - 0.5H <= 0 -0.5A - 0.5P + 0.5M + 0.5H <= 0 -0.25M - 0.25H + G >= 0 -0.6A + 0.4P >= 0 A, P, M, H, G <= 0 a. What fraction of the portfolio should be invested in each type of security (A, P, M, H, G)?b. How much should be invested in each type of security?c. What are the total earnings for the portfolio?d. What is the marginal rate of return on the portfolio? That is, how much more could be earned by investing one more dollar in the portfolio? *Please use excel solver & show all steps**
- If the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR, which of the following statements about the other measures of worth for this alternative must be true? i. PW = 0 ii. AW = 0. Solve, a. I onlyb. II only c. Neither I nor II d. Both I and II.An investor is consider four different opportunities, A, B, C, or D. The payoff for each opportunity will depend on the economic conditions, represented in the payoff table below. Economic Condition Investment Poor Average Good Excellent (S1) (S2) (S3) (S4) A 50 75 20 30 B 80 15 40 50 C -100 300 -50 10 D 25 25 25 25 What decision would be made under minimax regret?Computing Present and Future Values Under Different Assumptions Determine the unknown variables in each of the four separate investment scenarios. Round the RATE to one percentage point (for example, enter 8.5 for 8.54444%). Round NPER, PV, and PMT to the nearest whole number. Use a negative sign only for an amount related to PMT. Investment 1 Investment 2 Investment 3 Investment 4 RATE Answer 7% 6% 1% NPER 10 Answer 4 24 PV $216,000 $9,000 Answer $21,600 PMT $(35,000) $(2,300) $(16,200) Answer TYPE End of period Beg. of period End of period Beg. of period
- The single sum, present worth factor: a. Can be depicted as (1 + i)−n b. Can be depicted as (P|F i%,n) c. Is represented as PV using the Excel® financial function with −1 inserted for the fv parameter d. All of the above.Suppose the average return on Asset A is 6.6 percent and the standard deviation is 8.6 percent and the average return and standard deviation on Asset B are 3.8 percent and 3.2 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.25 percent. How likely is it that such a low return will recur at some point in the future? (Do…Four assets have the following distribution of returns. Probability Rate of return (%)Occurrence A B C D0.1 10.0 6.0 14.0 2.00.2 10.0 8.0 12.0 6.00.4 10.0 10.0 10.0 9.00.2 10.0 12.0 8.0 15.00.1 10.0 14.0 6.0 20.0 In each asset alculate The expected rate of return, standard deviation, variance coefficient of variation