Suppose the net present values of projects A and B show a distribution as follows.Net Present Value (TL)7501000125015001750Project A 0.10.150.20.250.3Project B 0.150.250.30.10.2a) Compare the projects according to the expected value criteria?b) Compare the projects by standard deviation criteria?c) Evaluate A and B projects according to the coefficient of variation criteria?

Expected NPV (A)=750×0.1+1000×0.15+1250×0.2+1500×0.25+1750×0.3=75+150+250+375+525 Expected…

Answered: Suppose the net present values of…

Suppose the net present values of projects A and B show a distribution as follows. Net Present Value (TL) 750 1000 1250 1500 1750 Project A 0.1 0.15 0.2 0.25 0.3

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 2P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Suppose the net present values of projects A and B show a distribution as follows.

Net Present Value (TL)	750	1000	1250	1500	1750
Project A	0.1	0.15	0.2	0.25	0.3
Project B	0.15	0.25	0.3	0.1	0.2

a) Compare the projects according to the expected value criteria?

b) Compare the projects by standard deviation criteria?

c) Evaluate A and B projects according to the coefficient of variation criteria?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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