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Two projects have the following NPVs and standard deviations:
Project A Project B
NPV 200 300
Standard deviation 75 100
Which of the two projects is more risky?
Since the two projects have different NPVs and standard deviations, the correct method to measure the riskiness is Standard deviation / NPV i.e. standard deviation per unit of NPV.
Project A = 75/200 = 0.375
Project B = 100/300 = 0.333
Since project A has higher risk per unit of return, project A is more risky.
2. Your firm has an opportunity to make an investment of $50,000. Its cost of capital is 12 percent. It expects aftertax ...
Calculate the NPV and IRR in this case.