Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Question
Chapter 11, Problem 11P
a)
Summary Introduction
To determine:
b)
Summary Introduction
To determine: Project’s certainty equivalent net present value.
c)
Summary Introduction
To determine: Whether the project should be accepted or not.
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Consider the case of another company. Kim Printing is evaluating two mutually exclusive projects. They both require a $1 million investment today and
have expected NPVS of $200,000. Management conducted a full risk analysis of these two projects, and the results are shown below.
Risk Measure
Standard deviation of project's expected NPVS
Project beta
Correlation coefficient of project cash flows (relative to the firm's existing projects)
Which of the following statements about these projects' risk is correct? Check all that apply.
Project B has more stand-alone risk than Project A.
Project A has more corporate risk than Project B.
Project A
$80,000
1.2
0.7
Project B has more corporate risk than Project A.
Project A has more market risk than Project B.
Project B
$40,000
1.0
0.9
OmegaTech is considering project A. The project would require an initial investment of $58,500.00, and then have an expected cash flow of $72,800.00 in 4
years. Project A has an internal rate of return of 9.57 percent. The weighted-average cost of capital for OmegaTech is 6.69 percent. The risk of the project is
similar to the average risk of the company. Which one of the following assertions is true?
The NPV that Omega Tech would compute for project A is less than or equal to -$11.24.
The NPV that Omega Tech would compute for project A is greater than -$11.24 but less than $0.00.
The NPV that Omega Tech would compute for project A can not be computed from the information provided
The NPV that Omega Tech would compute for project A is equal to greater than $0.00.
OmegaTech is considering project A. The project would require an initial investment of $52,100.00, and then have an expected cash flow of $77,900.00 in 4
years. Project A has an internal rate of return of 9.31 percent. The weighted-average cost of capital for OmegaTech is 6.99 percent. The risk of the project is
similar to the average risk of the company. Which one of the following assertions is true?
The NPV that Omega Tech would compute for project A is less than or equal to -$11.16.
The NPV that Omega Tech would compute for project A can not be computed from the information provided
The NPV that Omega Tech would compute for project A is equal to greater than $0.00.
The NPV that OmegaTech would compute for project A is greater than -$11.16 but less than $0.00.
Chapter 11 Solutions
Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
Ch. 11 - Prob. 1QTDCh. 11 - Prob. 2QTDCh. 11 - Prob. 3QTDCh. 11 - Prob. 4QTDCh. 11 - Prob. 5QTDCh. 11 - Prob. 6QTDCh. 11 - Prob. 7QTDCh. 11 - Prob. 8QTDCh. 11 - Prob. 9QTDCh. 11 - Prob. 10QTD
Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 28PCh. 11 - Prob. 29P
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