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In: Finance
Sky Fly, Inc is considering an investment in two different expansions. The following estimates have been...
Sky Fly, Inc is considering an investment in two different expansions. The following estimates have been calculated for each project. X Y Initial Investment 15,000 15,000 Annual Rate of Return Pessimistic 16% 10% Most Likely 20% 20% Optimistic 24% 30% Discuss What is the range of the rates of return for each of the projects? Which project is less risky? Why? Which investment would you choose? Why? What does your investment choice say about your feelings towards risk? Assume that expansion Y most likely outcome is 21% per year and that all other facts remain the same. Does this change your investment choice answer? Why? What are the ethical considerations that Sky Fly's managers should observe when deciding between the two projects?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of Sky...
Sky Fly, Inc is a
fast growing drone manufacturer. The annual rate of return of Sky
Fly's stock has been 20% over the past few years. Company managers
believe 20% is a good estimate for the firms' cost of capital. Sky
Fly's CEO, Dane Cooper, believes the company needs to continue to
invest in projects that offer the highest possible returns.
Currently, the company is reviewing two separate projects. Project
E involves expanding production capacity. Project I involves
introducing one...
Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of Sky...
Sky Fly, Inc is a fast growing drone manufacturer. The annual
rate of return of Sky Fly's stock has been 20% over the past few
years. Company managers believe 20% is a good estimate for the
firms' cost of capital. Sky Fly's CEO, Dane Cooper, believes the
company needs to continue to invest in projects that offer the
highest possible returns. Currently, the company is reviewing two
separate projects. Project E involves expanding production
capacity. Project I involves introducing one...
Consider Sky Fly, Inc is a fast growing drone manufacturer. The annual rate of return of...
Consider
Sky Fly, Inc is a
fast growing drone manufacturer. The annual rate of return of Sky
Fly's stock has been 20% over the past few years. Company managers
believe 20% is a good estimate for the firms' cost of capital. Sky
Fly's CEO, Dane Cooper, believes the company needs to continue to
invest in projects that offer the highest possible returns.
Currently, the company is reviewing two separate projects. Project
E involves expanding production capacity. Project I involves
introducing...
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Hampton Manufacturing estimates that its WACC is 12.3%. The company is considering the following seven investment...
Hampton Manufacturing estimates that its WACC is 12.3%. The
company is considering the following seven investment projects:
Project
Size
IRR
A
$ 700,000
14.1
%
B
1,100,000
13.6
C
1,100,000
13.0
D
1,350,000
12.8
E
750,000
12.5
F
750,000
11.9
G
850,000
11.8
Assume that each of these projects is independent and that each
is just as risky as the firm's existing assets. Which set of
projects should be accepted?
Project A
-Select-acceptdon't acceptItem 1
Project B
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Hampton Manufacturing estimates that its WACC is 12.1%. The company is considering the following seven investment...
Hampton Manufacturing estimates that its WACC is 12.1%. The
company is considering the following seven investment projects:
Project
Size
IRR
A
$ 800,000
13.7
%
B
1,100,000
13.2
C
1,100,000
12.6
D
1,200,000
12.4
E
800,000
12.3
F
800,000
11.7
G
850,000
11.6
Assume that each of these projects is independent and that each
is just as risky as the firm's existing assets. Which set of
projects should be accepted?
Project A
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Project B
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Hampton Manufacturing estimates that its WACC is 12.6%. The company is considering the following seven investment...
Hampton Manufacturing estimates that its WACC is 12.6%. The
company is considering the following seven investment projects:
Project
Size
IRR
A
$ 700,000
14.3
%
B
1,100,000
13.8
C
1,100,000
13.2
D
1,100,000
13.0
E
500,000
12.7
F
500,000
12.1
G
900,000
12.0
1. Assume that each of these projects is independent and that
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Hampton Manufacturing estimates that its WACC is 12.4%. The company is considering the following seven investment...
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company is considering the following seven investment projects:
Project
Size
IRR
A
$ 700,000
14.5
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B
1,250,000
14.0
C
1,250,000
13.4
D
1,250,000
13.2
E
700,000
12.9
F
700,000
12.3
G
1,000,000
12.2
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-Select-acceptdon't acceptItem 1
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-Select-acceptdon't acceptItem 2...
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$...
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