Question

16. (10 points, show your work): Under Armour, Inc. is considering two potential investments. The probability distributions of annual end-of-year cash flows for the respective projects are: Project A Project B Probability Outcome Probability Outcome .25 $20,000 S30,000 $40,000 .25 .50 .25 $24,000 $30,000 $36,000 .50 25 Both projects will require an initial outlay of $100,000 and will have an estimated life of 6 years. Project A is considered a riskier investment and will have a risk- adjusted required rate of return of 15%, while Project B's risk-adjusted required rate of return is 12%. a) Determine the expected value of each project's annual cash flow. Project A Project B b) Determine each project's risk-adjusted net present value. Project A Project B

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins 義Cut aCopy Format Painter Σ AutoSum , Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Cells dting Alignment CD16 BT BU BV BW BX BZ CA CB CD CE CF NOTE PVI FA @ 15%,6 YEARS PROJECT A PROJECTB EXPECTED EXPECTED 4 PROB OUTCOME RETURN PROB OUTCOME RETURN 6 0.25 0.5 0.25 20000 0.25 0.5 0.25 24000 6000 15000 9000 30000 3.784483 15000 10000 30000 36000 PVI FA @ 12%,6 YEARS 10 11 aEXPECTED VALUE 12 13 4.111407 PROJECT A 30000 PROJECT B 30000 15 b NPV FOR PROJECTA 16 17 18 19 20 11 -1 i PV FV DIVIDEND . EMV 1 MEAN STDV NPV FOR PROJECT B NPVPV OF ALL CASH FLOWS- INITIAL INVESTMENT NPV- 30000 Х PVI FA@ 12%, 6 YEARS-100000 NPV- 30000X4. 111407-100000 NPV = NPVPV OF ALL CASH FLOWS- INITIAL INVESTMENT NPV= 30000X PVI FA@ 15%, 6 YEARS-100000 NPV30000 X 3.784483 100000 NPV = 23342.21 13534.49 DEAR ! Sheet2 | COV TIME SERIES : corr REGRESSION CAMERA MATRIXINTERVAL, NORMAL HYPOTHD