Question
In: Finance
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.
Solutions
Expert Solution
Calculate the expected NPV and standard deviation and CV as follows:
Formulas:
--------------------------------------------------------------
NPV method is used for accepting or rejecting the project. As, the Expected NPV is positive accept the project.
Ignore standard deviation and CV. Standard deviation and CV are used to compare between two projects. When using this two, project conflicts, NPV will prevail over both.
jeff jeffy answered 1 year agoRelated Solutions
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
Red Royal Industrial is evaluating the medical clinic project. During year 1, the medical clinic project...
Red Royal Industrial is evaluating the medical clinic project.
During year 1, the medical clinic project is expected to have
relevant revenue of 647,200 dollars, relevant variable costs of
207,600 dollars, and relevant depreciation of 63,700 dollars. In
addition, Red Royal Industrial would have one source of fixed costs
associated with the medical clinic project. Red Royal Industrial
just signed a deal with Orange Valley Consulting to develop an
advertising campaign for use in the project. The terms of the...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project
X
Project
Y
0
- $20,000
- $20,000
1
13,730
6,470
2
6,060
6,470
3
6,460
6,470
4
2,120
6,470
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project.
(Do not round discount factors. Round intermediate
calculations to 2 decimal places, e.g. 15.25 and final answer to 4
decimal places, e.g. 1.2527.)
The PI for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project X
Project Y
0
- $20,000
- $20,000
1
13,530
6,370
2
5,960
6,370
3
6,460
6,370
4
1,920
6,370
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project.
(Do not round discount factors. Round intermediate
calculations to 2 decimal places, e.g. 15.25 and final answer to 4
decimal places, e.g. 1.2527.)
The PI for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows: Year Project X Project Y 0 - $20,000 -
$20,000 1 12,530 6,570 2 6,360 6,570 3 6,160 6,570 4 2,020 6,570
The cost of capital for both projects is 10 percent. Calculate the
profitability index (PI) for each project. (Do not round discount
factors. Round intermediate calculations to 2 decimal places, e.g.
15.25 and final answer to 4 decimal places, e.g. 1.2527.) The PI
for project X...
You are analyzing two proposed capital investments with the following cash flows: Year Project X Project...
You are analyzing two proposed capital investments with the
following cash flows:
Year
Project X
Project Y
0
-$20,000
-$20,000
1
13,630
7,720
2
5,860
7,720
3
6,160
7,720
4
2,020
7,720
The cost of capital for both projects is 10 percent.
Calculate the profitability index (PI) for each project. (Do not
round discount factors. Round intermediate calculations to 2
decimal places, e.g. 15.25 and final answer to 4 decimal places,
e.g. 1.2527.)
1) What is the PI for project...
Consider the following probability distribution of returns estimated for a proposed project that involves a new...
Consider the following probability distribution of returns
estimated for a proposed project that involves a new ultrasound
machine:
State of the Economy
Probability of Occurrence
Rate of Return
Very poor
0.10
-10.0%
Poor
0.20
-2.0%
Average
0.40
14.0%
Good
0.20
22.0%
Very good
0.10
34.0%
a. What is the expected rate of return on the project?
b. What is the project’s standard deviation of returns?
c. What is the project’s coefficient of variation (CV) of
returns?
d. What type of...
Analyzing Project Viability. What are the responsibilities of the project sponsor(s) if a project—when proposed/undertaken—requires new...
Analyzing Project Viability. What are the
responsibilities of the project sponsor(s) if a project—when
proposed/undertaken—requires new or unproven technologies? What are
some of challenges that may arise even if the project’s technology
has been previously demonstrated or is deemed standardized?
Note: Respond in a short essay of approximately 150 -200
words.
You were unhappy that the project that you had proposed has been rejected as the NPV...
You were unhappy that the project that you had proposed has been
rejected as the NPV is negative based on revised assumptions on the
sales numbers.
How- ever, the next day the manager came and conveyed a good
news, the state gov- ernment is willing to offer you a subsidized
loan at 3% interest rate, which is 6% lower than the cost of debt
of your firm, for a period of 5 years. The amount committed by the
state government...
LongHorn Corp is analyzing a proposed project. The company expects to sell 10,000 units, plus or...
LongHorn Corp is analyzing a proposed project. The company expects
to sell 10,000 units, plus or minus 4 percent. The expected
variable cost per unit is $10 and the expected fixed costs are
$400,000. The fixed and variable cost estimates are considered
accurate within a plus or minus 10 percent range. The depreciation
expense is $61,000. The tax rate is 32 percent. The sales price is
estimated at $70 a unit. What is the operating cash flow under the
best...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- (2) Cite an example on how organizations like Google, Facebook, Youtube etc collect data for image...
- The legal landscape is perpetually changing. Psychologists must remain abreast of these changes to avoid potentially...
- We are evaluating a project that costs $1.68 million, has a six-year life, and has no...
- In C++ Having call-by-reference allows one to use storeback parameters, i.e., parameters whose values are transmitted...
- You must evaluate a proposal to buy a new milling machine. The base price is $175,000,...
- “Triangle Guessing” game in Python The program accepts the lengths of three (3) sides of a...
- THIS PROGRAM HAS TO BE WRITTEN IN C Single function to perform the parity computation on...
ADVERTISEMENT