Question
In: Statistics and Probability
A private equity firm is evaluating two alternative investments. Although the returns are random, each investments...
A private equity firm is evaluating two alternative investments. Although the returns are random, each investments return can be described using normal distribution. The first investment has a mean return of $2,250,000 with a standard deviation of $125,000. The second investment has a mean return of $2,525,000 with a standard deviation of $500.000.
B). How likely is it that the Second investment will return $2,100,000 or less?
The probability is _______
C). If the firm would like to limit the probability of a return being less than $2,025,000 which investments should it make?
The probability of a return being less than $2,025,000 is ____ with the first investment and ____ with the second. So the firm would make ____ investment.
Solutions
orchestra answered 2 years agoRelated Solutions
A private equity firm is evaluating two alternative investments. Although the returns are random, each investment's...
A private equity firm is evaluating two alternative investments.
Although the returns are random, each investment's return
can be described using a normal distribution. The first investment
has a mean return of $2000000 with a standard
deviation of $125000 . The second investment has a mean return of $
2275000 with a standard deviation of $ 300000 .
Complete parts a through c below.
a. How likely is it that the first investment will return
$1,800,000 or less?
The probability...
An institutional investor has 45% of their assets in private investments – private equity and private...
An institutional investor has 45% of their assets in private
investments – private equity and private debt. These investments do
not trade daily and do not have daily pricing. (Buying and selling
these investments is somewhat difficult.) This allocation has
allowed them to achieve top performance over the past decade.
How is this a challenge to managing their rebalance policy if
there is a substantial recession? How could this help or hurt
them?
Alternative Capital Investments The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion...
Alternative Capital Investments
The investment committee of Sentry Insurance Co. is evaluating
two projects, office expansion and upgrade to computer servers. The
projects have different useful lives, but each requires an
investment of $490,000. The estimated net cash flows from each
project are as follows:
Net Cash Flows
Year
Office Expansion
Servers
1
$125,000
$165,000
2
125,000
165,000
3
125,000
165,000
4
125,000
165,000
5
125,000
6
125,000
The committee has selected a rate of 12% for purposes of net...
Should expected returns to private equity be different from expected returns to public equity? Why? Provide...
Should expected returns to private equity be different from
expected returns to public equity? Why? Provide some justifications
to your answer?
I am considering two alternative investments: growth firm with earnings of $50,000 and a market value...
I am considering two alternative investments: growth firm with
earnings of $50,000 and a market value of $70,000,000 or value firm
with earnings of $400,000 and a market value of $10,000,000. Assume
the appropriate discount rates for growth firms is 15% and the
appropriate discount rate for value firms is 9%. What are the
implied growth rates for each of the firms? What are the present
value of growth opportunities (PVGO) for each firm?
A firm is evaluating the alternative of manufacturing a part that is currently being outsourced from...
A firm is evaluating the alternative of manufacturing a part
that is currently being outsourced from a supplier. The relevant
information is provided below:
For in-house manufacturing:
Annual fixed cost
=
$75,000
Variable cost per part
=
$140
For purchasing from supplier:
Purchase price per part
=
$150
Using this information, find the best decision if the demand is
6,500 parts. Round your answers to the nearest dollar.
Total cost of production: $
Total cost of outsourcing: $
The best...
A firm is evaluating the alternative of manufacturing a part that is currently being outsourced from...
A firm is evaluating the alternative of manufacturing a part
that is currently being outsourced from a supplier. The relevant
information is provided below:
For in-house manufacturing:
Annual fixed cost
=
$60,000
Variable cost per part
=
$100
For purchasing from supplier:
Purchase price per part
=
$180
Using this information, find the best decision if the demand is
6,500 parts. Round your answers to the nearest dollar.
What is the total cost of production: $
what is the total...
Private Equity investors often require internal rates of return of more that 25% on the investments...
Private Equity investors often require internal rates of return
of more that 25% on the investments they make. 1.How are these
required rates of return justified? 2.Explain how the practice of
demanding a high risk premium is inconsistent with using expected
cash flow forecasts that include a realistic view of the possible
downside of the investment to value a business.
Tyson is considering 2 alternative investments (A and B). The cost of each is $100,000. The...
Tyson is considering 2 alternative investments (A and B). The
cost of each is $100,000. The annual net cash flows for the 5 year
investment are:
Year
Investment A
Investment B
1
20,000
$10,000
2
30,000
60,000
3
40,000
60,000
4
40,000
20,000
5
30,000
10,000
Answer the following:
Payback period for Alternative 'A'[Q1] format: x.xx
Payback period for Alternative 'B'[Q2] format: x.xx
NPV for Alternative 'A' at 10% discount rate[Q3] format:
$xx,xxx
NPV for Alternative 'B' at 10% discount...
Better Health Inc. is evaluating two capital investments, each of which requires an up-front (year 0)...
Better Health Inc. is evaluating two capital investments, each
of which requires an up-front (year 0) expenditure of $1.5 million.
The projects are expected to produce the following net cash
inflows:
a. What is each project's IRR?
b. What is each project's NPV if the opportunity cost of capital
is 10 percent? 5 percent? and 15 percent?
Year
Project A
Project B
1
$500,000
$,2000,000
2
1,000,000
1,000,000
3
2,000,000
600,000
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