Question

In: Finance

Merton Clinic managers are analyzing a new project. The project’s most likely NPV is $120,000. The...

Merton Clinic managers are analyzing a new project. The project’s most likely NPV is $120,000. The project cost of capital (discount rate) is 10 percent.

Probability   NPV

0.05   ($800,000)

0.25   200,000

0.50   400,000

0.20   600,000

What is the project’s standard deviation?

a. -$300,000

b. $300,485

c. *$291,719

d. $281,593

e. $300,000

Solutions

Expert Solution

Solution :

The project's Standard Deviation is = $ 291,719.0429

= $ 291,719 ( when rounded off to the nearest whole number )

The solution is Option c. $ 291,719

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The managers of Tetron Medical Clinic are analyzing a proposed project. The following NPV distribution is...
The managers of Tetron Medical Clinic are analyzing a proposed project. The following NPV distribution is given. Probability NPV 0.05 -$700,000 0.2 -$250,000 0.5 $120,000 0.2 $200,000 0.05 $300,000 a. What is the project's expected NPV and standard deviation of NPV? b. Compute CV? c. What decision is appropriate for this project using NPV, standard deviation and CV? Please show your work.
You are evaluating an investment project and learn the following: The project’s NPV at a discount...
You are evaluating an investment project and learn the following: The project’s NPV at a discount rate of 16% is +$35,879 The project’s NPV at a discount rate of 20% is +$12,356 The project’s NPV at a discount rate of 22% is -$1,923 Based on (i)-(iii) above you know the project’s IRR must be: a. Less than 16% b. Greater than 22% c. Between 16% and 20% d. Between 20% and 22% e. Exactly 20%
What is the NPV of a project that costs $120,000 today and is expected to generate...
What is the NPV of a project that costs $120,000 today and is expected to generate annual cash inflows of $10,000 for the next 12 years, followed by a final inflow of $21,000 in the year after. Use discount rate of 14%. Round to the nearest cent.  
What does it mean when a capital budgeting project has an NPV of zero? The project’s...
What does it mean when a capital budgeting project has an NPV of zero? The project’s IRR will be less than the required hurdle rate for the project The firm’s stockholders will earn a positive return, but it will be less than their required return, given the risk of the investment The firm’s security holders will earn their required rate of return, given the risk of the investment The firm’s stockholders will earn a negative return none of the above
When a capital budgeting project has an NPV of zero, what does this mean? The project’s...
When a capital budgeting project has an NPV of zero, what does this mean? The project’s IRR will be less than the required hurdle rate for the project The firm’s stockholders will earn a positive return, but it will be less than their required return, given the risk of the investment The firm’s stockholders will earn a negative return The firm’s security holders will earn their required rate of return, given the risk of the investment none of the above
If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR?
Corporate Finance1. ABC Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:Expected Cash FlowsYearProject AProject B0-375-5751-3001902-2001903-1001904600190560019069261907-2000If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR? What is the regular payback period for these two projects? What is the profitability index for each project if the cost of capital is 12%? The answer should be a...
Managers of CVS Pharmacy are considering a new project. This project would be a new store...
Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted. Year 0: ($1,250,000) Year 1: $200,000 Year 2: $500,000 Year 3: $400,000 Year 4: $300,000 Year 5: $200,000 Suppose that the appropriate discount rate for this project is 7.7%, compounded annually. Calculate the net present value for this proposed project. Do not round at intermediate steps in your...
Managers of CVS Pharmacy are considering a new project. This project would be a new store...
Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted. Year 0: ($1,250,000) Year 1: $200,000 Year 2: $500,000 Year 3: $400,000 Year 4: $300,000 Year 5: $200,000 Suppose that the appropriate discount rate for this project is 5.2%, compounded annually. Calculate the net present value for this proposed project. Do not round at intermediate steps in your...
1. Managers of CVS Pharmacy are considering a new project. This project would be a new...
1. Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted. Year 0: ($1,250,000) Year 1: $200,000 Year 2: $500,000 Year 3: $400,000 Year 4: $300,000 Year 5: $200,000 Suppose that the appropriate discount rate for this project is 6.7%, compounded annually. Calculate the net present value for this proposed project. Do not round at intermediate steps in...
1. Managers of CVS Pharmacy are considering a new project. This project would be a new...
1. Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They calculate that the NPV for this project is -$300,000. What decision should the managers make, and why? A. Accept the project, because NPV is positive. B. Reject the project, because NPV is negative. c. Accept the project, because NPV is negative. D. Reject the project, because NPV is positive. 2. Olympus Property Management owns two million square feet of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT