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    Pappy's Potato: Calculating Project Cash Flows and NPV for your portfolio

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    Calculating Project Cash Flows and NPV - See attached file.

    If your portfolio is invested 30 percent each in A and B and 40 percent in C, what is the portfolio's expected return? The variance? The standard deviation?

    b. If the expected T-bill rate is 4.25 percent, what is the expected risk premium on the portfolio?

    c. If the expected inflation rate is 3 percent, what is the expected real return on the portfolio? What is the expected real risk premium on the portfolio?

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    Solution Preview

    See attached Excel attached.

    4. Calculating Project Cash Flows and NPV.

    Pappy's Potato has come up with a new product, the Pet Potato (they are freeze-dried to last longer). Pappy's paid $120,000 for a marketing survey to determine the viability of the product. It is felt that Pet Potato will generate sales of $270,000 per year. The fixed costs associated with this will be $115,000 per year, and variable costs will amount to 30 percent of sales. The equipment necessary for ...

    Solution Summary

    The explanations in both Word and Excel are clear and concise with respect to the problem questions of risk and return.